Moving Forward with a New Project? What You Need to Know about Construction Contracts

The ins and outs of creating an airtight construction contract.

When you’re about to embark on a construction project, you want to make sure that you and your client are on the same page. And the best way to get on the same page—both from a project and a legal standpoint? Drawing up a construction contract.

A construction contract lays out the details and expectations of a project to make sure everyone is in agreement before the work starts.

But why are contracts so important? What are the different types? And what do you need to include in your construction contract? Here’s everything you need to know before you get started on your next construction project.

What’s a Construction Contract—and Why Is It Important?

First things first. Before we dive too deep into construction contracts, let’s take a moment to define what, exactly it is. And why it’s so important.

A construction contract is a legal document that outlines, in detail, the parameters of a construction project. The contents of the agreement will depend on the type of project and the type of client. For example, your contractor agreement for a residential client would typically look different than a contract for a commercial client. Regardless of the project or client, it’s important to have a concrete contract in place from the beginning.

Having a legal construction agreement in place offers a layer of protection for both the contractor and the client.

Concrete contracts help protect your business and your client over the course of the project. Without that contract in place, you can run into issues if either party has a dispute.

For example, without contract documents outlining the scope of the project, you might run into a situation where a client insists on additional construction services—without paying for them. Or let’s say you’re struggling to collect payment from a client. If you don’t have a construction contract that clearly outlines your payment schedule, your client can argue that they don’t have to pay you by any specific date—which can wreak havoc on your business’ finances.

The point is, construction contracts will help get you and your client on the same page. And even if, for whatever reason, you don’t stay on the same page, those contracts will help ensure that both you and the client follow through on the terms of your contractor agreement.

What Are the Four Types of Construction Contracts?

There are a variety of ways to structure a contract. But generally, a construction contract will fall into one of the following four categories:

Lump sum/fixed price: This type of contract rolls the costs of the entire project into a single lump sum or fixed price (hence the name). While there may be added incentives for finishing before the stated completion date (or penalties for finishing later), the client will only be responsible for paying the set price outlined in the contract. Cost plus: A cost plus contract requires the client to pay for all the costs associated with the project, including labor and materials. The client will also pay an additional fee (which could be a fixed fee or a percentage of the total project costs) to cover the contractor’s overhead and profit. Time and materials: A time and materials contract sets an hourly or daily

Continue reading

This post was originally published on this site