A contract entails a legal and mutual agreement that takes place between two entities either individually or as a group. There are terms and conditions that the agreement stipulates, but the owner takes an upper hand in drafting. A contract can take various forms. A construction project has several types of works, and each can adopt any of the contractual forms.
In this form of a contract, the owner agrees to pay a full amount when the work is done. One of the notable elements of this contract form is that there is no breakdown of costs. Additionally, a contracted agent does not provide details or measurements of the completed work.
Lump sum and scheduled
This contract has similar terms with a lump sum contract, but the contracted agent has to provide a cost breakdown. It means that the agent has to keep a record of the project inputs and compile a report once the job gets completed. Some of the listed costs include cost of labor, materials and transportation.
Cost Plus Fixed Fee
The payment terms under this form of contract entail the cost of the project and additional amount on top of the cost. It means that the contracted agents get a refund of the money spent on the project inputs, and they get a fixed fee as their profit. This contract requires record keeping that pools the costs that the project incurs.
Cost plus cost
This contract calls for the calculation of the total cost of the project, and the total costs add up to 100 percent. The parties usually agree to charge a specified percentage on top of the costs. This move makes the owner to pay more than 100 percent of the total cost. A detailed expense cost accounting comes in handy in the computation of the returns that the contracted agent gets.
Time and material
Under this form of contract, the scope of the project remains unknown to the agreeing parties. The owners of the contract chooses daily or hourly rates, and they sometimes put a cap on the duration of the project. The capping of the duration gears to minimize the risks associated with the cost of the project. Notably, this form of a contract applies to small projects.
Unit pricing contracts entail an agreement of specified quantities as well as specified pricing for unitized items. The contact calls for bidding, and the owner of the contract settles on a bid that seems convenient. The unit prices help the owner to notice inflated costs. In case of a change adjustment, the contract helps the contracting parties to easily make changes to the affected units without affecting the entire cost of the project.