Contractors have the responsibility of overseeing various types of construction jobs. In order to become a contractor, there are certain requirements that must be met. Chief among these requirements is that he/she must have a license from the state, other requirements include certificates in construction. Other functions include managing the workers, supervising structure demolitions, estimating the project costs among other duties. In this business, an industrial contractor prefers working with contracts. So, let’s look at some of the contracts in the market today.
Common Types of Construction Contracts
A contract provides a legal binding agreement between the constructor and the client. There are many types of contracts in the construction market today. However, there are certain types of contracts that are most preferred by construction experts. The contract is usually defined by various factors i.e. the way the construction will be done, the disbursement method, quality, duration, client’s specification, and other items. These contracts can always be customized to meet the needs of the product in the project.
The Cost Plus Contract Type
This contract involves payment of the construction actual cost, expenses directly from construction activity and other expenses. This type of contract must include specific information on a pre-negotiated amount and the constructor’s profit. The cost must be included and categorized as either direct or indirect. There are variations involved. They include cost which comes in hand with a fixed percentage, cost plus fixed fee, and cost plus with a guaranteed bonus price contract.
Time and Material Types of Contract
This contract is preferred when the project scope is not defined or is not clear. The contract owner must clearly stipulate the hourly or daily hour rates that have been agreed upon. This includes additional expenses incurred in the process of construction. The contract is important either for a small scope or in an event where a realistic guess on the project length can be made. There are many more types of contracts available in the market. Some may include unit pricing. A good example is unit pricing contracts. There are many construction firms that offer construction services.
The Fixed Price Contract Type
Just from its title, this type of contract involves a total fixed price for the construction activities. It’s a type of contract preferred when a schedule and a clear scope has been agreed upon. It’s used when the risk is to be transferred back to the client and the constructor. This is to avoid changing orders for unspecified works, including this risk in the contract which comes with a percentage cost.
Benefits of a Written Contract
Written contracts have many benefits. It minimizes the business risks and makes the agreement right from the start. It provides tangible proof of what has been agreed between the contractor and the client. It prevents any misunderstanding or rising disputes by making the terms clear from the beginning. It is a reference point as it contains records of what has been agreed. These are just but a few examples of written contract benefits.