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 is a type of agreement between a client and a contractor, where the contractor is reimbursed for incurred costs and is also awarded an additional amount as profit or fee. This contract is commonly used in construction and other industries where predicting the total cost of a project in advance is difficult. In simple terms, a cost-plus contract ensures that the contractor is compensated for all the expenses related to the project, including labor, materials, equipment, and other direct costs. The key feature of this contract is that the client agrees to pay the actual costs incurred by the contractor, rather than a pre-determined fixed amount. There are different types of cost-plus contracts, each with its own variations. Some commonly used types are: 1. Cost-plus fixed fee contract: In this arrangement, the contractor is reimbursed for all the costs incurred during the project and is also awarded a fixed fee or profit. This fee is agreed upon and remains constant, regardless of the actual costs involved. 2. Cost-plus percentage contract: In this type of contract, the contractor is reimbursed for all the project costs, and the profit is calculated as a percentage of those costs. The percentage is predetermined and often stated in the contract. 3. Cost-plus incentive fee contract: With this contract, the contractor is reimbursed for the incurred costs, and the profit is determined based on achieving specific performance objectives or targets. Incentives are provided to encourage the contractor to meet or exceed these targets. 4. Cost-plus award fee contract: This contract involves reimbursing the contractor for all costs and awarding an additional fee or profit based on the evaluation of their performance by the client. The fee is subjectively determined based on predetermined evaluation criteria. These different types of cost-plus contracts provide flexibility to accommodate various project requirements and risk allocations. They allow both the client and the contractor to share the risks associated with uncertainties in project cost estimation.
