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 Puerto Rico, a Construction Contract for Home refers to a legally binding agreement between a homeowner and a construction contractor, outlining the terms and conditions of a construction project. This contract can be categorized into two main types: Fixed Fee and Cost Plus contracts, each having its own unique characteristics and advantages. 1. Fixed Fee Contract: A Fixed Fee Contract, also known as a lump sum contract, involves a predetermined fixed amount that the homeowner will pay to the contractor for completing the project. This amount is agreed upon before the construction work commences and remains unchanged throughout the project, regardless of any unforeseen circumstances or changes in material costs. The contractor is responsible for completing the project within the specified budget and timeline, ensuring they bear any additional costs or delays themselves. Keywords: Fixed Fee, Lump Sum, predetermined amount, unchanged, budget, timeline, responsibility. 2. Cost Plus Contract: A Cost Plus Contract, on the other hand, is based on the actual costs incurred during the construction process, including materials, labor, equipment, and overheads. Under this contract, the homeowner agrees to reimburse the contractor for the costs incurred, along with an agreed-upon profit margin or fee, usually a percentage of the total costs. Unlike the Fixed Fee Contract, the Cost Plus Contract provides greater flexibility, as it takes into account any changes in material prices or unforeseen expenses that may arise during the project. Keywords: Cost Plus, actual costs, reimbursement, profit margin, flexibility, material prices, unforeseen expenses. It is worth mentioning that within these two primary contract types, there can be additional variations or subcategories based on specific requirements or arrangements made by the parties involved. Some of these variations include: a) Guaranteed Maximum Price (GMP) Contract: This type of contract is a hybrid between the Fixed Fee and Cost Plus contracts. It establishes a maximum price that the homeowner will pay for the project. If the actual costs exceed the maximum price, the contractor is responsible for covering the additional expenses. However, if the actual costs are lower, the homeowner enjoys the benefit of the cost savings. Keywords: Guaranteed Maximum Price, hybrid, actual costs, additional expenses, cost savings. b) Target Cost Contract: In a Target Cost Contract, the homeowner and the contractor agree on a target budget for the project. The contractor is then responsible for completing the project within this budget. If the actual costs exceed the target cost, the homeowner and the contractor may share the additional expenses based on a predetermined ratio. Conversely, if the actual costs are lower than the target cost, the savings may also be shared between the parties. Keywords: Target Cost, budget, additional expenses, sharing ratio, savings. In summary, a Construction Contract for Home in Puerto Rico can be established as a Fixed Fee Contract or a Cost Plus Contract. However, variations such as Guaranteed Maximum Price (GMP) and Target Cost contracts are also utilized based on specific requirements and preferences of the parties involved.
