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.
In Hawaii, a construction contract for a home can be structured as either a fixed fee or a cost-plus contract. These contracts play a crucial role in outlining the terms and conditions between the homeowner (also known as the client or owner) and the construction contractor. 1. Fixed Fee Contract: A fixed fee contract is a type of construction contract where the homeowner agrees to pay the contractor a predetermined, fixed amount for the completion of the project. This fixed fee is negotiated and agreed upon before the project starts and does not change, regardless of any unforeseen circumstances or changes in costs that may arise during the construction process. It provides an advantage to homeowners as they have a clear understanding of the cost and can effectively budget for the project. 2. Cost Plus Contract: A cost-plus contract is another type of construction contract commonly used in Hawaii. Unlike the fixed fee contract, the cost-plus contract allows for flexibility in terms of project costs. Under this arrangement, the homeowner agrees to reimburse the contractor for the actual costs incurred during the construction, including building materials, labor, and subcontractor fees. Additionally, the contractor is entitled to add a prenegotiated fixed fee or percentage markup to cover their overhead expenses and profit margin. It is essential to note that within the cost-plus contract, there can be further variations: a. Cost Plus a Fixed Fee: This variation involves the contractor receiving reimbursement for all the actual project expenses as mentioned above, along with an agreed fixed fee or lump sum amount, which represents their profit margin. b. Cost Plus a Percentage Fee: In this scenario, the contractor adds a prenegotiated percentage fee over and above the actual project costs. This allows them to cover their overhead expenses and achieve their profit margin. Both the fixed fee and cost-plus contracts have their pros and cons, and the selection between the two depends on the homeowner's preference, project complexity, and budget. Before signing any construction contract, it is advisable for homeowners to carefully review the agreement, consult legal experts if necessary, and ensure clarity on payment terms, project timeline, change order procedures, and warranties to protect their interests.
