A Construction contract is a written agreement between the borrower and the builder for services to be provided by the builder for a stated consideration. For each construction, key criteria must be considered and risks allocated, before the form of contract is selected. Developing a well designed construction contract template can enable you enclose all relevant information and requirement and can make your life a lot easier.
Construction contract Overview
There are mainly two types of construction contracts: residential and commercial. The purpose of the contraction determines the form of the construction contract. A residential construction contract includes three basic elements: project scope, schedule of work and payment details.
Construction Contract Types
There are basically two types of construction contract types: fixed price or cost plus contracts. The fixed price construction contract stipulates a total fixed priced for all construction related activities. To encourage the constructor company to finish the construction on schedule or in advance, the contract may include clause that give incentives or benefits for early termination, or can also have penalties for a late termination. Fixed cost contracts are common when a clear construction scope and a defined schedule has been reviewed and agreed upon.
Another types of construction contract is cost plus contracts. This type of contract involves payment of the actual costs, purchases or other expenses generated directly from the construction activity and margins. A cost-plus contract is open for the changes of price and the budget is difficult to anticipate at the beginning. If you sign this type of agreement, you have to hope that no unforeseen circumstances are encountered by the contractor.
Construction Contract Template
When formulating your construction contract template, it is important to include key information and follow the basic requirement of the template.
The first part in the construction contract template is the contract objectives and responsibilities. In the contract, you need to have a clear statement outlining the responsibilities each party will perform.
The second part in the template is construction time and payment. In the section, the template needs to specify the date of the contract, the scheduled dates for commencement and completion of construction of the project. The amount of payment the builder is to receive for each stage of construction, as well as under what conditions it will be received, such as passing inspection etc.
The last key section is for construction contract provisions. In this part, you need to give provisions for possible changes to plans or specifications by appropriate change orders.