Establishing clear expectations is an important part of any relationship. It’s especially important, though, in relationships between contractors and clients. These expectations should be outlined and agreed upon in the form of a contract. You might be wondering, what are the 5 essential elements of a construction contract? And what are the 4 types of building contracts? The answers to these questions offer important insight into the terms of a construction agreement. No matter what role you play in the construction process, you should understand the following four facts about contractors insurance and construction contracts.
Five Elements of a Contract
A construction contract includes far more than five elements, but there are five imperative components that should never be overlooked. The first is specificity. Construction contracts should always be specific in detailing the work that is to be done, when it should be done, and how it should be done. The responsibilities of the client — including payment details — should also be outlined clearly.
Secondly, a contract should include incentives to motivate both parties to fulfill their obligations. Similarly, a contract should include contingencies that allow for the management of unexpected delays. These delays are sometimes covered by contractors insurance. Finally, the contract should include protocol for any necessary amendments and the signatures of all stakeholders.
Four Types of Contracts
There are several different types of construction contracts that may be used. A lump sum contract is one option. It is sometimes referred to as a fixed price contract, and it indicates a single price for a construction job. It remains set, regardless of any changes to the project. A cost plus contract offers a different method of payment that is comprised of two parts. These parts include a single set fee as well as additional costs that might be uncertain at the time of the agreement.
Contractors who wish to charge based on their time and expenses can do so with a time and materials contract. This is most appropriate for projects that entails an unknown scope of labor and materials. Finally, a unit pricing contract allows for the sale of a large quantity of materials.
When to Use a Contract
Construction can be unpredictable. Though technology can mitigate common delays, the fact remains that construction projects rarely adhere entirely to the plan. This makes it all the more important for a contract to identify the potential pitfalls, negotiate an agreeable protocol, and establish expectations for both parties. When is it important to use a contract, though — and is it necessary for every construction project? Contracts are always important because they obligate both parts to fulfill their agreement. A contract should be in place any time construction is taking place.
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