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Four Main Construction Contracts

A construction contract is a common agreement among two or more parties to carry out construction on a project following the laws and policies. The construction contracts involve extensive and special policies. They deal with subjects like the amount of work, payments, plans, and quality to cover all the rights and duties of the parties involved.

Construction Contracts

Construction estimator software is important in directing contractors to provide accurate estimates to win a proposal. Various construction contracts are applicable in the construction sector, but below are the main four you should never forget about as a professional.

1. Stipulated Sum Contract

It is also known as a lump sum or fixed-price contract. It is the primary form of agreement between a builder and the client. You should use this type of contract if the capacity and plan of the project are properly defined to permit the builder to completely approximate project expenses.

A stipulated sum contract demands that the builder accepts to be accountable for properly executing the job according to the budget provided. The client has significantly allocated the risk of the project expenses to the builder, who can be expected to request maximum markup to foresee unexpected dangers.

If the exact costs of labor and materials are higher than approximated, the builder’s gains will be reduced. If the exact costs are lower, the builder’s gains are maximized. In both aspects, the cost to the client does not change.

2. Cost Plus Contract

Cost-plus contracts are frequently applied when the capacity has not been clarified, such as when the project design is still being completed, and the owner desires to start construction. The client accepts to cater for the costs of the job, including all transaction subcontract jobs, labor, materials, and equipment, plus a fee for overhead and gains.

The client controls the savings if the actual prices are lower than planned. If the actual price is higher than approximated, the client has to pay the extra fee unless the price is restricted to an approved maximum price. The best part of a cost-plus contract is that the contract will end as it was planned, even if the costs go up. But, regardless of the lower value of the contractor’s risk, these contracts are difficult to supervise, and a lot of management is required.

3. Design-Build Contract

The type of contract is relevant when the client wants one organization to be accountable for design and construction. In most cases, design-build is commonly the most used method under a busy schedule, and design-build contracts are frequently awarded through discussions rather than via a proposal procedure.

When using a design-build contract, the client employs a contractor to manage the whole job. The architect is responsible for all design and construction needed to finalize the project. Because the design-build is the manager of the whole project, it may require employing architects, engineers, contractors, and subcontractors to perform the project.

4. Integrated Project Delivery Contract (IPD)

Integrated Project Delivery Contracts are a project delivery viewpoint that advances people, systems, business formations, and practices into a procedure that collectively controls the skills and perceptions of all parties and advances project results, maximizes value to the owner, minimizes waste, and maximizes productivity through all phases of design, fabrication, and building.

IPD fundamentals can be used for different contractual positioning, and IPD parties can include members well beyond the primary triangle of owner, builder, and architect. The IPD contract is seen to be more clarified among all the members involved in a construction project. In addition, the members who enter into this contract share both risk and reward.


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