This form is a Construction Contract. The form contains the following subjects: scope of work, work site, and insurance. The contractor's warranty is limited to defects in workmanship within the scope of the work performed by the contractor.
What is a Construction contract agreement?
If you’re planning to build, renovate or reconstruct your house, you will need to enter into a contract for home construction with the building contractor, defining your mutual rights and responsibilities. This agreement contains project specifics, the contractor’s license and insurance details, the requested scope of work, etc. It may also determine the potential lien on the property should the work not be paid in full.
Types of construction contracts
Depending on the payment arrangements determined by parties, there are four basic types of home builders’ contracts:
1. Fixed price (or lump-sum) agreements set the price for the completed job right from the start. Although fixed, the document may also include provisions defining penalties (for example, if the constructor fails to finish the work on schedule).
2. Cost plus construction agreements set the price for the finished work based on building materials and labor with additionally mentioned “plus” (a percentage of the total costs or a fixed fee).
3. Time and material agreements set the price for the work without a “plus,” but the client pays the contractor a daily or hourly rate while they are under contract.
4. Unit-price agreements are standard in bidding, particularly for federal building projects. Both owner and contractor define the price that the contractor charges for a standard unit without any specific extra fees for other units.
The first two types of contract for home construction mentioned are the most popular ones. Let’s take a closer look at them.
Fixed price vs. cost-plus contract benefits
The fixed price agreement benefits owners more than builders, as it determines at the moment the parties seal the deal the exact price the contractor will get after they complete all the work. Builders risk not getting the estimated profits they initially anticipated, as expenses may increase significantly but remain the constructor’s responsibility.
The cost-plus construction deal contains the evaluation of the final project cost; however, it doesn’t determine the final contract price until the contractor completes all the work. Unlike the fixed-price agreement, it separates expenses and sets the profit rate (as a percentage of the final project cost or as a flat amount), so contractors prefer this type of agreement; it is riskier for homeowners.
Information you should provide in the construction contract agreement
The presented Construction Contract for Home is a universal multi-state construction contract template. This sample describes typical terms for a home building contract. Download a printable document version from our website or amend and fill it out online. Make sure to provide the following information:
• Name and contact details of the contractor and their license number;
• Name and contact details of the homeowner;
• Property legal description from county clerk’s records;
• Project description with blueprints and building specifications;
• Scope, description of work, and its estimated final dates;
• Costs of work and responsibilities of parties for any breach of contract.
A cost plus contract for contractors is a type of contractual agreement commonly used in construction projects. This contract structure allows contractors to be reimbursed for the direct costs incurred during the project, along with an agreed-upon percentage or fixed fee as compensation for their services. This compensation may cover labor, materials, equipment, and other related expenses. One of the main advantages of a cost plus contract is that it provides transparency as the contractor is required to provide detailed records of all costs incurred. This transparency ensures that the client has visibility into the actual expenses and can verify that the contractor is not making additional profits through higher mark-ups on materials or other means. There are different types of cost plus contracts that contractors might enter into, each with its own characteristics: 1. Cost Plus Fixed Percentage (CPF): In this type of contract, the contractor will be reimbursed for all direct costs incurred during the project, and on top of that, they receive a predetermined percentage of the total cost as a fee. For example, if the project costs $100,000 and the predetermined fee percentage is 10%, the contractor would be reimbursed for the $100,000 in costs plus an additional $10,000 as their fee. 2. Cost Plus Fixed Fee (CUFF): This contract is similar to CPF, but instead of a percentage, it includes a fixed fee as compensation for the contractor's services. The fixed fee amount is usually determined during the negotiation phase and remains unchanged throughout the project duration. This provides more predictability in terms of the contractor's compensation. 3. Guaranteed Maximum Price (GMP): Unlike the previous types, a GMP contract establishes an upper limit or cap on the total project cost. The contractor is still reimbursed for their actual costs incurred, but they are responsible for managing the project within the agreed-upon maximum price. If the costs exceed the GMP, the contractor typically absorbs the additional expenses without reimbursement. Cost plus contracts are often used in situations where project scope or specifications are not fully defined at the start or in projects with a high level of uncertainty. They shift some risks associated with cost overruns to the client, but also provide more flexibility for making changes during the project as they are not limited by a fixed price. In conclusion, cost plus contracts for contractors provide a flexible and transparent payment structure that reimburses the contractor for actual costs incurred, along with additional compensation in the form of a percentage or fixed fee. CPF, CUFF, and GMP are common variations of cost plus contracts, each with distinct characteristics and purposes.
