As simple as the single-price formula may seem, lump sum contracts are not as dry and dry. Here are some of the main pros and cons of lump sum contracts: No matter how good your relationship is or how careful you are, conflicts will inevitably arise. Most contracts usually include an arbitration clause. The types of construction contracts are usually defined by how the payment is made and include other specific terms such as duration, quality, specifications and other points. These main types of contracts can have many variations and can be tailored to the specific requirements of the product or project. A major disadvantage of this type of contract is that the seller can raise an unlimited or unknown amount that the buyer must pay. For this reason, refundable contracts are rarely used. Here are some types of refundable contracts: As a project manager, it is your responsibility to sign the right types of contracts with a variety of service providers to reduce risk and deliver the project on time. You should always consider the right type of contract to provide optimal value for the time and money spent on the project while protecting it from as many risks as possible.

This type of contract will determine either a lump sum or a fixed price; These types of contracts are the most common, especially if the work is clear and neither party is aware of any problems at the time the contract is concluded. Understanding the different types of construction contracts will help you decide which type is right for you and your project. In addition to the contract, there are many other moving parts to consider, such as the amount of work you need, the design technology you should consider, and the most important machines you need for the job. Consider implementing value engineering in your next project to weigh cost and material options and ensure you get the best value for money. Take a look at our heavy equipment catalog to see through your rental options. Costs must be classified as direct, indirect, surcharges and overheads and must be included in the contract. Sometimes the owner may want to set an upper limit or a specific project duration for the contractor that must be respected to minimize the owner`s risk. These contracts are useful for small areas or when you can make a realistic estimate of how long it will take for the area to close. As a project manager, you need to know the different types of contracts and the legal aspects of projects. Imagine having to outsource a process or product to external subcontractors or suppliers in the middle of your project. What type of contract would you use for the third party? In such situations, project managers need to have a good understanding of a variety of contract types so that they can manage contract negotiations effortlessly.

Sometimes another type of construction contract may also include a GMP provision. For example, a cost-plus contract could include a clause that limits the total cost to a guaranteed maximum price. Unlike unit pricing, fixed-price or fixed-price contracts provide for a clear total charge for a project, which means that the full scope of a construction as well as schedules must be negotiated before the agreement. With this type of agreement, much of the risk is transferred to the builder because they cannot adjust their invoices later to account for delays and other unexpected cost overruns. Flat-rate or fixed-price contracts may also contain lump-sum compensation clauses in the event of construction delays and/or incentives for the customer to complete the construction prematurely. Changes in the scope of the project and/or specifications may also result in increased costs for the buyer. They are not always suitable for complex projects that require complicated tasks and many different types of materials. They do not incentivize entrepreneurs and can lead to a loss of profit if the initial estimates are not compliant.

Since the owner does not pay for cost overruns, guaranteed price contracts transfer a lot of risk to contractors. Given this risk, contractors can use good cost estimating software. Order calculation is an important accounting process for any construction project, and a solid estimate minimizes risk by helping contractors avoid overcharging or underloading the owner. The owner assumes most of the risk by agreeing to pay for the time and materials spent on the construction. When the scope of a construction project and all of its requirements and expenses are unknown, costs plus contracts are often used. These agreements set a premium for the actual cost, both for labour and for materials incurred during construction. This supplement is the customer`s profit. Although the surtax formula is agreed in the contract – usually in the form of a percentage of the actual cost or a fixed fee – the final cost is determined based on the actual work. Costs plus contracts can also set a minimum limit on expenses or fees. There are two ways to involve subcontractors in the project, depending on the type of construction management contract.

According to Lean IPD, “Integrated Project Delivery (IPD) is a delivery model for the realization of construction projects with a single contract for design and construction with a common risk-reward model, guaranteed costs, exemption from liability between team members, an operating system based on Lean principles and a collaborative culture.” In this case, all payments to subcontractors are the responsibility of the construction manager, who then adds the amount to the payment entitlements he sends to the owner. This type of contract is also known as an alliance agreement and involves several parties, including the property owner, designers, builders, and other stakeholders. Therefore, this type of contract allows for greater transparency between all parties involved. .