Scribd
Upload
123 views2 pages

Type of Contracts

The document discusses different types of construction contracts including lump sum, cost plus, time and material, and unit pricing contracts. Lump sum contracts involve a fixed total price while cost plus contracts involve payment of actual costs plus a negotiated percentage for overhead and profit. Time and material contracts are used when the scope is unclear and involve agreed hourly rates. Unit pricing contracts set prices for predetermined quantities of items.

Uploaded by

Andres Sanchez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
123 views2 pages

Type of Contracts

The document discusses different types of construction contracts including lump sum, cost plus, time and material, and unit pricing contracts. Lump sum contracts involve a fixed total price while cost plus contracts involve payment of actual costs plus a negotiated percentage for overhead and profit. Time and material contracts are used when the scope is unclear and involve agreed hourly rates. Unit pricing contracts set prices for predetermined quantities of items.

Uploaded by

Andres Sanchez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

APPLIED TECHNICAL ENGLISH

CLASS 16 Miss Débora Muñoz M

A construction contract provides a legal binding agreement for both the owner and the builder that says
the executed job will receive the specific amount of compensation. It may also say how that
compensation will be distributed. There are several types of construction contracts used in the industry,
but there are certain types of construction contracts preferred by construction professionals.

Construction contract types are usually defined by the way the disbursement is going to be made. It
details other specific terms, like duration, quality, specifications, and several other items. These major
contract types can have many variations and can be customized to meet the specific needs of the
product or the project.

Lump Sum or Fixed Price Contract Type

This type of contract involves a total fixed price for all construction-related activities. Lump sum
contracts can include incentives or benefits for early termination, or can also have penalties, called
liquidated damages, for a late termination.

Lump sum contracts are preferred when a clear scope and a defined schedule has been
reviewed and agreed upon.

This contract shall be used when the risk needs to be transferred to the builder and the owner wants to
avoid change orders for unspecified work. However, a contractor must also include some percentage
cost associated with carrying that risk. These costs will be hidden in the fixed price. On a lump sum
contract, it is harder to get credit back for work not completed, so consider that when analyzing your
options. 

Cost Plus Contracts

This type of contract involves payment of the actual costs, purchases, or other expenses generated
directly from the construction activity. Cost plus contracts must contain specific information about
a certain pre-negotiated amount (some percentage of the material and labor cost) covering contractor’s
overhead and profit. Costs must be detailed and should be classified as direct or indirect costs. There
are multiple variations of cost-plus contracts and the most common are:

 Cost Plus Fixed Percentage


 Cost Plus Fixed Fee
 Cost Plus with Guaranteed Maximum Price Contract
 Cost Plus with Guaranteed Maximum Price and Bonus Contract

Cost plus contracts are used when the scope has not been clearly defined and it is the owner
responsibility to establish some limits on how much the contractor will be billing. When some of the
aforementioned options are used, those incentives will serve to protect the owner's interest and avoid
being charged for unnecessary changes.

Be aware that cost plus contracts are difficult or harder to track and more supervision will be
needed.

Time and Material Contracts When Scope is Not Clear

Time and material contracts are usually preferred if the project scope is not clear, or has not been
defined. The owner and the contractor must establish an agreed hourly or daily rate, including
additional expenses that could arise in the construction process.

The costs must be classified as direct, indirect, markup, and overhead, and should be included in the
contract. Sometimes the owner might want to establish a cap or specific project duration to the
contractor that must be met, in order to have the owner’s risk minimized. These contracts are useful for
small scopes or when you can make a realistic guess on how long it will take to complete the scope.

Unit Pricing Contracts

Unit pricing contracts are another type of contract commonly used by builders and in federal agencies.
Unit prices can also be set during the bidding process as the owner requests specific quantities and
pricing for a pre-determined number of unitized items.

By providing unit prices, the owner can easily verify that they're being charged with un-inflated prices
for goods or services being acquired. Unit price can easily be adjusted up and/or down during scope
changes, making it easier for the owner and the builder to reach agreements during change orders.

TASK: MAKE A CONCEPT MAP ABOUT TYPES OF CONSTRUCTION CONTRACTS. IT


MUST BE IN ENGLISH AND SPANISH.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy