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Construction Contracts

The document outlines four types of construction contracts: lump sum, unit price, cost-plus, and time materials. Lump sum contracts are fixed price agreements for well-defined projects, while unit price contracts are based on estimated quantities and rates. Cost-plus contracts cover all labor and materials plus contractor profit, and time materials contracts combine fixed and reimbursing elements, often with a set hourly rate.

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34 views2 pages

Construction Contracts

The document outlines four types of construction contracts: lump sum, unit price, cost-plus, and time materials. Lump sum contracts are fixed price agreements for well-defined projects, while unit price contracts are based on estimated quantities and rates. Cost-plus contracts cover all labor and materials plus contractor profit, and time materials contracts combine fixed and reimbursing elements, often with a set hourly rate.

Uploaded by

mamoied
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Construction Contracts

1 – #Lumpsum Contracts

In a lump sum contract, the engineer or/and contractor agrees to do the specified
project for a fixed price. Also called “fixed fee contracts,” these are often used for
engineering ventures.
A lump sum or fixed fee contract is appropriate if the scope and schedule of the project
are sufficiently defined to allow the consulting engineer to estimate project costs.

2- #Unitprice Contract

A unit price contract is a type of construction contract based on estimated quantities of


items included in the project and their unit prices as initially estimated (rates may be
hourly, the rate per unit work volume, etc.). In general, the contractor’s overhead and
profit are included in the rate. The final cost of the work depends on the total quantity
of items required to carry it out and complete it.

Unit price contracts are appropriate only for a project which involves well-known
resources in quantities which are unknown at the time of the agreement, and will be
defined when the design and engineering or construction work is finished.

A unit price agreement is one of the best choices for construction or supplier projects
where the contract documents can correctly identify the various kinds of items, but not
the numbers that are needed.

It is not uncommon to combine a unit price contract with a lump sum contract or other
types of agreement for some parts of the project.

3 – #CostPlus Contract

This is a contract agreement wherein the purchaser agrees to pay the cost of all labor
and materials, plus an amount for contractor overhead and profit (usually stated as a
percentage of the labor and material cost). In construction, a cost-plus contract may be
specified as:

Cost-Plus + Fixed Percentage


Cost-Plus + Fixed Fee
Cost-Plus + Fixed Fee With Guaranteed Maximum Price
Cost-Plus + Fixed Fee + Bonus
Cost-Plus + Fixed Fee With Guaranteed Maximum Price and Bonus
Cost-Plus + Fixed Fee With Agreement for Sharing Any Cost Savings
Cost-plus contracts are preferred when the scope of the work is indeterminate or highly
uncertain and the kinds of labor, material and equipment needed are also uncertain.
Under this arrangement, complete records must be maintained of all time and materials
that the contractor spends on the work.

4 – #TimeMaterials Contracts
Contracts for time and materials (T&M) are a hybrid of fixed and cost-reimbursing
contracts, and are used in cases where there can be no clear scope of work: for
example, if the number of hours that the client needs is not clear. In this case, a set
professional hourly rate is used (for instance, fees and costs). With this kind of contract,
it’s always a good idea to set a ceiling or a price that cannot be exceeded, to prevent
being overrun with heavy costs.

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