Construction Agreement: Everything you need to know
A construction contract agreement is a document that sets out the limits and terms of operation for a construction project. It typically defines the type of construction to be done (including all required work), the cost of doing so, when to pay, and the timeline in which certain parts of the work must be completed.
A clearly constructed construction contract can save the parties involved from problems as the obligations and timeline are written within the contract.
- How a Construction Contract Agreement Works
- Types of Construction Contract Agreements
- Do I Need a Construction Contract Agreement?
- Different types of pricing in construction agreements
How a Construction Contract Agreement Works
Most construction companies or contractors will have a template that they use as the basis for their construction contracts. This template will set their standard operating procedures, values, and other conditions.
Depending on the project, each agreement will be slightly different, with adjustments made to the job, costs, and more, depending on the job. However, most contractual agreements must include specific clauses to protect the parties on both sides of the agreement.
Project description: This explains what the project is about, including the most important idea or a description of the problem being considered. It can be a summary of things or a category.
Contract price: Here the contract price provided and the total amount received is detailed. Any additional additions or deductions from the contract and how it will be disbursed is also added.
Payment basis: Payment basis means the amount that will be paid to the contractor, either weekly, monthly, or milestone.
Schedule or calendar: The total number of days or how the project plan will be divided should describe calendar days or business days and may be displayed as a Gantt Chart, bar chart, CPM, or other methods.
List of documents: A list of all contract documents forms this part of the contract agreement. Drawings, exhibitions, specs, and additional scenarios may be part of this list.
Scope of construction: Scope can usually be measured and is a description of all construction activities that will form part of the project.
Conditions and construction work: Responsibilities of the owner and contractor, including who is responsible for providing documentation, details, payments, or other purchases, are set for the project to proceed on time.
Contract rules: Any legal requirements applied, including applicable laws, credit requirements, and pay damages, are specified here.
Once the contract is finalized, it must be signed by both parties before any work can begin. By signing, both parties indicate that they agree with the terms of the project. If either party violates the terms of the agreement, the contractor must set out the procedures for resolving the dispute, including legal action.
Types of Construction Contract Agreements
All contracts must:
- Contains a description of the product or service offered
- Be clear from both ends
- Include clearly contracted services
- Enter a cancellation or termination policy
- Make financial goals clear
However, depending on the project and the contract being made, they may vary or have multiple modifications. Here are different types of construction agreements:
Express
Express construction agreement defines the purpose and scope of the contract. Under these terms, the terms and conditions of the agreement are clearly understood by each party.
Executed
An executed contract provides for a period of warranty or non-performance. Under this agreement, services are provided, but the contract protects one side when the performance of the other fails to provide a valid warranty for the wrong or incorrect installation.
Conditional
A conditional contract agreement is an agreement used when services are not provided at the time the contract is signed. It sets a date for the services to be provided if certain conditions are met.
Do I Need a Construction Contract Agreement?
The contract agreement protects both parties involved in the construction work. It defines the scope of your work, explains the terms of payment, and provides solutions to disputes.
Without a proper contract, any dispute involved in the project may be a major legal battle. This can be very expensive for both property owners and contractors.
Having a construction contract agreement protects the legal and financial stake of all participants in the construction project. The owner of a construction company or a property owner should not agree to start work without one.
Different types of pricing in construction agreements
Total amount
Also known as a traditional "fixed price" contract, this is the most common price setting for construction contracts. In a lump sum contract, the parties agree on a fixed price, depending on the contract value of the total and final design costs. Cash contracts look at all utilities, subcontractors, employees, indirect costs, profits, and more.
Benefit
- The contractor is able to request high marks in anticipation of unexpected events
- The contractor has a great advantage when comparing the total cost
Disadvantage:
- The contractor carries almost all financial risks
- Contract derecognition of total costs will reduce profits
Cost or consolidation costs: In a cost-sharing agreement, the owner reimburses the contractor for all costs incurred during construction as equipment and labor. The owner also pays the agreed benefit limit, usually the amount payable or the percentage of total costs.
Benefit:
- Accurate accounting of high costs and general conditions
- Used when there is a variation in the number of items or time
Disadvantage:
- Post can go up quickly
- The owner must guarantee the hundreds or thousands of costs claimed
- The owner is at risk of unscrupulous contractors and fraud
Unit price: The unit price setting includes setting the price per unit. Here the contractor sets a price for each material.
Benefit:
- Accurate measurement of high costs and standard terms
- Used when there is a variation in the number of items or time
Disadvantage:
- Until the project is completed, the final cost remains unknown
- Creates an unequal bid due to the contractor's ability to raise and lower certain prices
The construction process also includes many moving parts and clearly defines which team is responsible for what role allows the process to go smoothly.
A few of the required components that can be assigned to each group include:
- Obtaining permits - New construction and additions to existing buildings already require local approval and approval.
- Providing building materials - Building materials can include cement, drywall, wood flooring, or paint.
- Purchases -Purchases - Remodeling and construction often include new items such as a metal stove, a Sub-Zero refrigerator, or a beautiful new candle.
- Pay for utilities - Sometimes, temporary services such as electricity, drinking water, and sanitation are needed for construction.
A construction contract agreement is a document that sets out the limits and terms of operation of a construction project. It is a contract between a builder and the person who hired them for a project. It protects the legal and financial stake of all participants in the construction project. A construction company owner or landowner should not start a construction project without one.
More Samples of Construction Agreement
