Are You Unsure Which Construction Contract To Use?

contractor showing paper to couple

Construction professionals and property owners are legally bound by a construction contract. Several types of contracts that can help achieve a wide range of objectives, since projects vary in many ways, for instance in the manner in which payment is disbursed. Considering that the requirements of a Fort Wayne building contractor may be unforeseen, it is paramount to determine the key characteristics of each type of contract and prepare accordingly. Some of the characteristics are not clear even after reading the websites of these contractors, yet they are crucial to the smooth engagement of all parties. Covered below are a few types of construction contracts.

Design and Build Contract

This type of contract is common in the construction fraternity, where both construction and design aspects of the project are merged under one contractor. Most people like this option for its time-saving nature, as instances of the property owner being lost between the builder and the designer are eliminated. If you have chosen this path, you will have less of change orders, construction time, drawings complexity and design time. Some drawbacks include a lack of integrated design and higher final costs.

Unit Price Contract

engineers looking at construction plansIn this type of contract, the focus is on particular tasks and their prices. Once the tasks are identified and the price suggested by the contractor, the project owner agrees to pay. One thing with this contract is that both parties assume a minimal risk. While the contractor worries less about an erroneous estimation of costs, the owner is happy because he or she can verify the costs easily.

Lump Sum/Stipulated Sum Contract

Most clients and contractors around the globe engage in this form of contract, whereby they place a fixed price for construction services. Once the price is settled, it is upon the contractor to complete the project within the stipulated time and in the agreed fashion. For unpredicted scenarios, the contractor may request a higher markup.

Incentive Contract

In this type of engagement, the contractor is paid based on performance, whose parameters can be anything from budget to specific targets. This contract can be either cost reimbursement or fixed price in nature. In the first version, the negotiated fee may be changed a bit in the future using a particular formula. For certain costs, a fixed-price incentive contract is used.

Cost-Plus Contract

For this contract, most of the risk goes to the project owner because the buyer is designated to pay for expenses such as materials and construction. You can opt for versions of the contract such as fixed percentage, bonus, and maximum price contract. The purpose of these variations is to lessen the risk on the property owner, despite the unclear scope of the project.


Regardless of which type of contractor you choose, you want to do a background check that covers a thorough check of their references. The Better Business Bureau in your area can help identify reliable contractors who will honor their side of the bargain. Such contractors have insurance, use written contracts, provide written estimates and prefer check payments.

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