A construction contract is a professionally drafted and legally processed document in which the estimation of constructing or remodelling a building, total labour cost, material to be used and other factors are decided between the two parties. The construction types come underneath the civil engineering branch.

Construction Contract Types

There are four types of contracts:

Lump Sum Contract:

As the name depicts, the contractor prepares a rough total estimation by evaluating the required services to start the construction project, whereas the total cost of the project can be overestimated and underestimated accordingly. Hence, if the total budget is lapsed underestimated then the extra amount will be reduced from the contractor’s benefits.

Incentive Priced Contract:

This type is called compensation contract, which is measured according to the agreed budget or committed target. Underneath are the two subtypes:

  • Cost reimbursed incentive contract.
  • Fixed price incentive contract.

The cost reimbursed incentive contract is valid only when the cost and total budget are negotiable, whereas the fixed price is preferred when the cost and estimation are reasonable.

Unit Price Contract:

This type of contract is based on the price unit and total quantity units. This contract is a good option for the supplier and small construction projects, whereas the estimation is easy and calculation is limited.

Cost plus Contract:

In this type of contract , the service purchaser is responsible for paying the overall cost of the supply material, the cost of labour and other charges including some percentage for the contractor as well.

Sub types of the cost plus contract includes the following

  • Cost+ fixed percentage contract
  • Cost + fixed fees with bonus contract
  • Cost+ fixed fees contract

Percentage of Construction fees contract:

This contract is based on the percentage of compensation which is based on the total construction fees.

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