Seeing your house or construction project taking shape is an exciting prospect. If you want the project to go according to plan, it pays to have a contract in place. A contract is simply a legally binding document that spells out the scope of the project plus when and how payments will be made. In this light, there are a few popular contract types that contractors use. Below, we will look at five of them.
Lump-Sum Contracts
This is one of the most popular types of contracts used by contractors. It is a contract that binds a project that has a fixed cost that is agreed upon by all parties before work starts. Because the full cost of the project is already spelled out, the contractor is able to keep the project within budget. It is also helpful for clients because they know there will not be any additional costs during the project.
Subcontract Agreements
As the name suggests, these are contracts signed between the main contractor and a sub-contractor. It lists everything the sub-contractor has to do for the main contractor and how much they will be compensated for these tasks. This type of contract also transfers responsibilities for what the sub-contractor does from the main contractor to the sub-contractor.
This type of contract also protects the sub-contractor by providing a guarantee that they will be compensated fully for everything they do.
Time and Material Contracts
These contracts are written where the scope of the project is not fully defined. The client and the contractor usually agree on rates for the materials to be bought plus hourly or daily rates for the contractor and those working under them. All of these rates must be verified and included in the contract.
To keep things as clear as possible, contractors can use contract lifecycle management to create, organize, and send contracts easily.
When these rates are added to the contract, they are usually defined as overhead, direct, indirect, or markup. In some cases, the client will put a cap on how much the contractor can bill during the project.
These contracts are perfect for when the client does not know how long a project might take or when they can estimate the amount of time it will take.
Cost Plus Contracts
These contracts are perfect for projects where the cost of materials and other resources cannot be immediately identified. The contract covers all costs, expenses, and purchases made during the project. The client has to establish the maximum cost of all these expenses to protect themselves from unnecessary charges.
Residential Contracts
These contracts are important for homeowners who want a new house. Because a house is a huge investment, a homeowner must ensure that the work they need is done properly. Because of laws that protect homeowners and clients, the contractor is obliged to do a good job and this type of contract ensures this happens.
This type of contract comes with many legal requirements attached, so every contractor must ensure they make their contract law-compliant.
Every contractor should draw up contracts for all projects they do. This protects them and their clients and ensures they are paid fully and on time.
