If you’re involved in the construction industry in North Carolina, you’re likely aware that construction contracts are an essential element of the process. Because these documents are so important, it’s important for contractors to know the different types of contracts and what protections they can offer. TheBalance.com offers insight in a few common construction contracts, and why they’re beneficial.
Fixed Price
If a solid construction schedule is in place with a clear end date, a fixed price contract is often applied. These types of contracts sets a price for all work slated to be performed, and any alterations to work must be submitted via change order. Some contracts might even offer a bonus if work is completed before the deadline, which serves as an impetus to expedite the process. Conversely, finishing after deadline might result in penalties.
Cost Plus
In the event the timeline for project completion is a bit murky, a cost-plus contract may be created. This type of contract tallies the cost of items and other expenses necessary during construction, which tends to benefit the contractor more (since it will be up to owner to keep costs in check). Additionally, negotiations may also be necessary for things like labor and overhead.
Time and Material
You can also bill on a daily/hourly rate when a project isn’t clearly defined. In this case, costs are usually broken down into a few different categories, which can include direct, indirect, overhead, and markup. A cap on total cost can be placed in order to keep a project on a budget. Accordingly, time and material contracts tend to work best for smaller jobs.
