A Construction Contract is a warranty that the executed job will receive the specific amount of compensation (payment of money) or how the compensation will be distributed. There are many types of construction contracts used in the construction industry, but there are certain types of construction contracts preferred by construction professionals. The best and most direct way to understand these reasons behind the different types of construction contracts is by examining and analyzing the construction costs of these contracts
There are three pricing forms of competitive contracts:
In this type of contracts the contractor bids a single fixed price for overall activities in the project scope. The contractor here is responsible for estimating project costs from drawings “DWG” then adds overhead & his profit to determine the price of the project.
All risks in the lump-sum contract are assigned to the contractor, there isn’t any risk carried by the owner. The contractor has an incentive in this contract as he is rewarded for an early finish & there is a penalty for a late finish.
The lump sum contract is ideal when the project scope is well defined at the design stage because there is limited flexibility for modifying the design during the construction period.