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Concept
Construction contract
Summary
A construction contract is a mutual or legally binding agreement between two parties based on policies and conditions recorded in document form. The two parties involved are one or more property owners and one or more contractors. The owner, often referred to as the 'employer' or the 'client', has full authority to decide what type of contract should be used for a specific development to be constructed and to set out the legally-binding terms and conditions in a contractual agreement. A construction contract is an important document as it outlines the scope of work, risks, duration, duties, deliverables and legal rights of both the contractor and the owner.
There are three main types of construction contract, identified according to the mechanism for calculating the sum due to be paid by the employer: lump sum contracts, re-measurement contracts and cost-reimbursable contracts. The different types vary primarily with regard to who takes the risks involved, which party has to pay for the cost over runs, and which party can keep the savings if the project costs are less than the estimated costs.
Other types of contract and descriptions of contractual purpose include:
Commercial contract
Domestic building contract
Percentage rate contract
Item rate contract or Unit price contract
Lump sum and scheduled contract
Cost plus fixed fee contract
Cost plus percentage of cost contract
Subcontract agreement
Special contracts
Lump sum contract in construction
Under a lump sum contract, an owner agrees to pay a contractor a specified lump sum after the completion of work without a cost breakdown. After work is complete, no detailed measurement is required.
In lump sum contract the complete work as per plan and specifications is carried out by contractor for certain fixed amount as per agreement. The owner provides required information and contractor charges certain amount. This contract is suitable when the number of items are limited or when it is possible to work out exact quantities of work to be executed.
Official source
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