TYPES OF CONSTRUCTION

CONTRACTS
 Construction Contract
- A construction contract contains general and special conditions
of agreement, details of construction project work, their
specifications, time limits, payments and penalties for delivery
delays, etc. and ensures every party's rights and obligations.
 Types of Documents in a Construction Contract

General Special Drawings and

01 02 03
Conditions Conditions Specifications

B.O.Q Letter of
04 05 06 Contractor Bid
(Bill of Quantity) Acceptance
 Conditions of Construction Contract
General Conditions of Contract Special Conditions of Contract
1. Definition of the project
2. Contract components They are the modifications
3. Rights and responsibilities required to suit the uniqueness
for the owner and the of the project, make the
contractor contract flexible for the nature
4. Project schedule of the project, and achieve
5. Payment method project objectives.
6. Warranty and delay penalty
 Selection of Type of Construction Contracts

Project Constraints
Project Delivery
Project Objectives There isn't any
construction project Method
The type of contract without constraints. Determines the
should meet with the relationships between
project objectives. parties getting
involved in the project
 Types of
Construction
Contracts
Types of Construction Contracts
Cost-Plus Contract
Contractors are paid for all
of their construction-related
expenses. That’s the cost
part of the name. The costs
can include direct costs
such as labor, materials,
supplies, etc.
 Cost-Plus Contract
Benefits Drawbacks
This type of construction contract You’ll need to keep track of all of
is usually looked upon pretty your expenses and be prepared
favorably by contractors. to present them.

There’s seemingly no risk of losing Some cost-plus contracts include

money on materials. Plus, you clauses with “not to exceed”
know you’ll incur a profit. amounts for costs.
 Design-Build Contract
A design-build contract addresses
design and construction costs
simultaneously. Under this type of
contract, the construction process
actually begins before the final
design is completed. This process
saves the owner time and money by
combining the design and
construction project delivery into
one contract. .
 Design-Build Contract
Benefits Drawbacks
The design-build contract helps to
Because there’s no competitive
speed up the process and avoid
bidding phase, the final costs may
disputes between the designer
be higher for the owner.
and builder.

It’s also more difficult to estimate

. Designers also have more input in costs due to the necessary
the construction drawing process, collaboration between designer
reducing the need for changes. and builder.
 Guaranteed Maximum
Price Contract
The GMP contract limits the amount
the owner will have to pay, and any
additional expenses incurred are
covered by the contractor. These
agreements limit the cost-risk for
the customer. They clearly define
the most the owner will have to pay,
which makes budgeting much
easier.
 Guaranteed Maximum Price Contract
Benefits Drawbacks
If the final costs come in under the
This can be particularly time-
GMP, the customer may receive all
consuming on large, multi-phase
of the cost savings or share them
projects. .
with the contractor.

It also places the majority of the

For contractors, it can also help to
risks on the contractor.
expedite the lending process.
 Incentive Construction
Contracts
If the project is delivered at a lower
cost and/or by the target deadline,
the contractor receives extra
payment. The amount they receive
is specified in the contract and may
be based on a sliding scale.
 Incentive Construction Contracts
Benefits Drawbacks
They also help to create a more Incentive contracts do require more
collaborative process where the negotiation to determine the
contractor has more ownership. incentives.

Because of the incentive phased Contractors need to clearly define

approach, the contractor and owner what meeting the incentive looks like
often communicate more and look for so there are no miscommunications
innovative ways to get the job done. when the project is delivered.
 Integrated Project
Delivery Contract
This type of construction contract
spreads the risk and rewards of the
project across the designer, builder,
and owner, dependent on the
project’s financial results.
 Integrated Project Delivery Contract
Benefits Drawbacks
They promote a sense of Each party needs to remain
ownership and teamwork as all committed to the IPD model or
parties must work together to risk reverting to traditional project
achieve the desired rewards. delivery methods.

They also spread the risk and IPD is still relatively new in the
reward fairly across parties and industry, so some design firms
foster greater accountability for and subcontractors may not want
the results of the project. to participate.
 Lump-Sum Contract

The contractor will deliver a total

price for the project rather than
bidding on the deliverables. The
agreement is relatively simple and
works well for projects with a well-
defined scope.
 Lump-Sum Contract
Benefits Drawbacks
Lump-sum contracts don’t dictate Lump-sum contracts aren’t
as much owner supervision and usually a good fit for more
approval. complicated projects.

you’ll need to be able to estimate

They give the contractor the
the project’s schedule, materials,
flexibility to focus on quality,
labor costs, overhead costs, and
materials, and output.
profit margins easily.
 Time and Materials
Contract
The owner pays an agreed-upon
price based on the time spent on
the project, required materials, and
the included profit rate. T&M
contracts allow for more flexibility in
the costs of the materials and
account for labor rates.
 Time and Materials Contract
Benefits Drawbacks
T&M contracts help the owner to There’s less transparency about
budget for the overall costs while
the final cost for owners, which
reducing the risk on the contractor’s
part in the case of fluctuating material can lead to disputes along the
and labor costs. way if prices rise.

They also help to prevent cost- Inaccurate estimates can also

cutting methods as the contractor potentially eat into the contractor’s
knows they’ll receive a profit. profit margins.
 Unit Price Contract
The unit price contract details prices
per unit, which may include
materials, labor, overhead, supplies,
and profit. The contract may or may
not include the number of units
needed to complete the project but
will likely include at least an
estimate.
 Unit Price Contract
Benefits Drawbacks
They’re not always a good fit for
These contracts work well with
complex projects that require
projects that can be easily divided
complicated tasks and many
into units.
different types of materials.

Contractors who use unit price They don’t incentivize contractors

contracts find the simple invoicing and can lead to profit loss if the
and shared risk beneficial. initial estimates are off-target.
References

8 Main Types of Construction Contracts. (2022, September 1). Retrieved from Construction Blog: https://constructionblog.autodesk.com/construction-
contracts-types/
Mentors, C. (2020, September 11). Top 4 Types of Construction Contracts. Retrieved from https://www.youtube.com/watch?v=KE-FGYOXg6Y
Types of Construction Contracts and their Comparison. (n.d.). Retrieved from The Constructor: https://theconstructor.org/construction/types-of-
construction-contracts-comparison/14268/