Construction Contract for Home - Fixed Fee or Cost Plus

State:
Multi-State
Control #:
US-00462
Format:
Word; 
Rich Text
Instant download

Description

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.

Definition and meaning

A Construction Contract for Home - Fixed Fee or Cost Plus is a legally binding agreement between a Contractor and an Owner for the construction of a residential property. Under this type of contract, the payment structure is specified as either a fixed fee, where a set price is agreed upon for the entire project, or cost-plus, where the Owner agrees to pay the actual costs incurred by the Contractor along with an additional fee. This document outlines the scope of work, responsibilities, and payment terms to protect both parties throughout the construction process.

Who should use this form

This form is ideal for homeowners looking to build, renovate, or expand their residence. It is also suited for Contractors who are seeking a formal agreement on the terms of their services. Individuals without prior legal experience will find this contract beneficial as it clearly defines both parties' obligations and expectations, reducing the potential for misunderstandings during the construction process.

Key components of the form

The Construction Contract includes several key components:

  • Scope of Work: Detailed description of the construction project.
  • Work Site: Location where the construction will take place.
  • Permits: Requirements for legal approval from local authorities.
  • Contractor's Fee: Specification of payment terms, either fixed fee or cost-plus.
  • Changes to Scope: Procedures for modifications during construction.

These components ensure that all expectations are clearly communicated and legally enforceable.

How to complete a form

To properly complete the Construction Contract, follow these steps:

  1. Enter the date when the contract is created.
  2. Identify the Contractor and Owner by filling in their names and contact details.
  3. Provide a detailed description of the project in the scope of work section.
  4. Specify the work site address and any particular descriptions required.
  5. Select the payment structure (fixed fee or cost-plus) and provide the appropriate amounts.
  6. Ensure both parties review the contract, make necessary changes, and sign the document.

Consult a licensed attorney if unsure about any section to ensure full understanding and compliance.

Common mistakes to avoid when using this form

When filling out the Construction Contract, be cautious of these common mistakes:

  • Failing to clearly define the scope of work, leading to potential disputes.
  • Not specifying important payment terms, which could result in payment issues.
  • Neglecting to include a timeline for project completion.
  • Overlooking necessary permits and legal requirements for the work site.

Taking the time to carefully review each section of the contract can help prevent these errors and ensure a smoother construction process.

What documents you may need alongside this one

In addition to the Construction Contract, you may need the following documents:

  • A land title or deed to prove ownership of the property.
  • Survey documents outlining property boundaries and conditions.
  • Permit applications to secure necessary local approvals.
  • Any existing agreements with subcontractors or suppliers that may affect the contract.

Gathering these documents will help to ensure a complete and enforceable construction agreement.

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FAQ

The main difference in a cost-plus versus a fixed price contract is the budget. Cost-plus contracts have no set spending limit, the contractor purchases the materials and receives reimbursement plus a fee. Fixed-pricing sets a specific dollar amount for a project.

Disadvantages of cost-plus fixed-fee contracts may include: The final, overall cost may not be very clear at the beginning of negotiations. May require additional administration or oversight of the project to ensure that the contractor is factoring in the various cost factors.

Cost Plus Contract Disadvantages For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way.

In the cost plus a percentage arrangement, the contractor bills the client for his direct costs for labor, materials, and subs, plus a percentage to cover his overhead and profit. Markups might range anywhere from 10% to 25%.

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Construction Contract for Home - Fixed Fee or Cost Plus