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Construction Contracting: Understanding Types Of The Construction Contract

Last Updated on April 18, 2023 by Admin

Construction contracting involves two or more parties agreeing to work on a project. The construction contract is a legally binding agreement that sets out the terms and conditions of the relationship between the parties. There are many construction contracts, and it is essential to understand the differences between them before entering into any agreement. The four most common construction contracts are lump sum contracts, cost-plus contracts, unit price contracts, and time and materials contracts.


What is a Construction Contract?

Construction contracts are agreements between two or more parties to execute construction work. These contracts are typically used to hire contractors and subcontractors to complete a project.

Construction contracts outline the rights, duties, and obligations of all parties involved in the project. They also specify the terms and conditions under which the work will be performed, including the price, schedule, and scope.


A contract in a construction project is an agreement between two or more parties to execute a project, usually defined in writing. It is a legally binding document that obligates the parties to perform according to specific terms and conditions.

The purpose of a contract is to ensure that all parties involved in the project understand their rights and responsibilities and to minimize the risk of disputes. To learn more about this, check this Construction Contract Management.

Types of Contracts in Construction

There are four main types of construction contracts: lump sum, unit price, cost-plus, and time and materials. Here are some of the most common types of construction contracts:

Lump sum contracts are a fixed price for the entire project. The owner knows how much they will pay for the project, and the contractor knows how much they will earn. This type of contract is often used for small projects with a well-defined scope.

Unit price contracts are similar to lump sum contracts, but the price is not fixed. Instead, the price is based on the quantity of work completed. This type of contract is often used for large projects that are difficult to estimate upfront.

Cost-plus contracts: With a cost-plus contract, the contractor is reimbursed for all costs incurred plus a fee (usually a percentage) for their services. This type of contract gives the contractor more incentive to control costs, but it can also lead to disputes over what counts as an “actual cost.”


Time and materials contracts: The contractor is paid for all hours worked plus materials used with a time and materials contract. This type of contract is suitable for projects where the scope is not well defined or is likely to change during the project.

Fixed-price contracts: With a fixed-price contract, the price is set in advance and will not change no matter what happens during the project. This type of contract is suitable for projects with a well-defined scope, with little room for uncertainty.

Incentive-based contracts motivate contractors to complete projects on time and within budget. In this type of contract, the contractor is typically paid a bonus if they can complete the project under budget or ahead of schedule.

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The Complexity of Construction Contracts

Construction contracts are notoriously complex. There are many different types of construction contracts, and each has its own unique set of rules and regulations.

This can make it difficult for contractors to understand all the different aspects of their contract. One of the most important things to understand about construction contracts is that they are often precise.

This means that there may be clauses in the contract that you are unfamiliar with. It is essential to take the time to read through your contract carefully so that you understand all of the terms and conditions.

Another thing to remember is that construction contracts often change over time. As the project progresses, new issues may arise that need to be addressed in the contract.


It is essential to stay up-to-date on the latest changes to your contract to ensure you comply with all the latest requirements.

The complexity of construction contracts can be daunting, but it is essential to remember that these documents are necessary to protect you and your client. By taking the time to understand all the different aspects of your contract, you can ensure that you can complete your project successfully.

Steps to take before signing a construction contract

You should take a few key steps before signing any construction contract, no matter the type. First, ensure you understand the contract’s basics by reading it over carefully and discussing any questions or concerns with your attorney.

Next, be clear on the scope of work to be performed and what is included in the contract price. Then, review the payment schedule and terms to ensure they are fair and realistic.

Finally, get all required permits and insurance in place before work begins. These precautions can help avoid problems down the road and protect yourself during construction.

When things go wrong with construction contracts?

It is not uncommon for construction projects to go over budget or experience delays. When this happens, it can be challenging to figure out who is responsible for the cost overruns or delays.

This is where construction contracts come in. Construction contracts are agreements between two or more parties that outline the terms of a construction project. They can be used to define the roles and responsibilities of each party, set expectations for the project, and provide a mechanism for resolving disputes.

There are many different construction contracts, but they all share some common features. For example, most construction contracts will include a scope of work that outlines the work to be completed, a schedule of values that outlines the payment schedule, and a set of drawings and specifications that detail the project requirements.

Construction contracts can be complex documents, so it’s essential to understand all of the terms before signing on the dotted line. If you’re unsure what something means, ask questions or have a lawyer review the contract before you sign it.

Which Contract Type is Right for Your Project?

There are many types of construction contracts, each with advantages and disadvantages. The type of contract you choose should be based on the specific needs of your project.

One of the most important factors to consider when choosing a contract type is the level of risk involved. If your project is high-risk, you’ll want to choose a contract that limits your liability in case something goes wrong.

On the other hand, if your project is low-risk, you may want to choose a contract that gives you more flexibility.


How to Negotiate the Best Contract for Your Project

When negotiating the best contract for your project, there are a few key points to keep in mind. First, you’ll want to ensure that you clearly understand the scope of work that needs to be completed.

Once you have a good grasp on the work that needs to be done, you can narrow down your list of potential contractors.

Once you’ve narrowed down your list of contractors, it’s time to start negotiating. When doing so, there are a few key things to remember.

First, you’ll want to ensure you get everything in writing. This includes the scope of work, the payment schedule, and other essential details.

Second, don’t be afraid to ask for what you want. If a contractor is trying to lowball you on price, be firm and stand your ground.

Third, don’t forget to factor in the cost of materials when negotiating your contract.

One final point to keep in mind when negotiating your construction contract is the importance of having a lawyer review the document before signing anything.

This is especially important if you’re unfamiliar with construction contracts or if there are any clauses in the agreement that you’re uncomfortable with. Having a lawyer look over the contract will ensure that everything is in order and that there aren’t any surprises down the road.


There are many types of construction contracts, and it’s essential to understand their differences before entering into any agreement. Each type of contract has its pros and cons, so it’s essential to weigh all your options carefully before making a decision. We hope this article has helped you better understand the different types of construction contracts and their key features.

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