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How to Determine the Way Construction Contracts Work

By Brown Ezilon.com Articles Published 12/4/2010 | Construction

Before you do sign a contract with a construction company it is important to be able to compare amongst the different contracts that are available and which one fits your construction objectives. Keep in mind that a construction contract protects your interests and by choosing the adapted contract format you can keep better track of your expenses and budget requirements. A well-written contract will also make it clear to the constructing company you choose exactly what your expect from them.

A Design-Build agreement is probably the easiest type of contract for a private homeowner, especially if you are looking for fast construction and a straightforward agreement. In this case you will be hiring a contractor or architect and will give him the go-ahead to hire a builder or designer to work on the project. The two entities will then work and coordinate the construction together based on the specifics you have given. As the architect and contractor are working under one single contract the risk for the private homeowner is lower and he does not to have to face up to any disputes between the two parties or delays related to the construction. In addition the price of the contract will usually include all the materials, designing and labor needed during the construction of your home, thus avoid unpleasant surprises such as higher costs at the end of the construction period.

Contracts with Fixed Price are the most common house building contracts. In this type of agreement the homeowner works together with the architect and develops all the project details. Then the owner will ask the architect for a bid, which includes the price for materials, equipment and labor. If you have asked for several bids, each contractor will offer a price and you as a homeowner can choose the lowest bidder. With this kind of contract the homeowner is less exposed to the financial risks for he knows what lies ahead. However, this kind of contract allows for less flexibility during the construction phase and there may be changes that can result in higher final costs.

Cost Plus contracts also known as a time and material contract is the best option for those who can pay a little extra and have more flexibility during the construction. The homeowner pays the ticket price of all materials and costs for labor plus a percentage that goes as profit for the construction company. The problem that you may have with these contracts is that the construction company has no incentive to finish the house quickly, which may lead to delays and you may be faced with added costs during the project. However, you can subscribe to a GMP or guaranteed maximum price in order to stay within a feasible expenditure and it is true that you have greater control over the construction of your house, materials or any changes you may deem necessary.