A construction contract is a mutual or legally binding agreement between two parties based on policies and conditions recorded in document form.
The owner, often referred to as the 'employer' or the 'client',[1] 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.
[2] 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.
In lump sum contract the complete work as per plan and specifications is carried out by contractor for certain fixed amount as per agreement.
Though it is lump sum and scheduled contract, contractor will be paid at regular interval of 2–3 months as per progress of work on the basis of certificate issued by engineer in charge.
A skillfully constructed commercial contract can protect both parties' interests, minimize risks, and increase profitability for the contractor.
It allows flexibility and transparency for the homeowner, and reduces the risk for a contractor since a Cost Plus construction contract guarantees them a profit.
[13] Duke and Carmen stated "Cost-plus with GMP provides an upper limit on total construction costs and fees for which an owner is responsible.
If the party providing the work under this pricing method runs over GMP, it is responsible for such overruns…Cost-plus with GMP and an agreement for sharing cost savings can incentivize both parties to a construction contract to work together as efficiently as possible.”[14] In this type of contract, the owner has more authorities in monitoring, inspecting and auditing the project periodically before ultimate payment.
This type of contract is suitable for emergency work like difficulties in foundation conditions, construction of expensive structure etc.
The payment is calculated at a specific rate for each item such as cubic yard for concrete times quantity put in place.
[19] This type of contract is normally utilized where the quantity of work cannot be established such as civil engineering construction projects where excavation of soil and rock are involved.
Typically half of the retention monies are released, the contractor's potential liability for liquidated damages ends and the defects rectification period begins.
[24] A retention is a sum of money withheld by the owner under the contract to act as security against incomplete or defective works.
states that the most common issues picked up by snagging surveys for residential properties tend to be concerned with the completion of plastering, tiling, skirting boards and external brickwork.