4 Types of Construction Contracts

A construction contract is a legal agreement between all parties involved. Construction projects have numerous people involved both on and off-site: the project manager, owner, designer, contractors, subcontractors, and more. To ensure all parties involved are protected, the contract must be clear and agreed upon by all.

Construction contracts clearly state project compensation, responsibilities of all involved, and risks assumed by all parties.

The following contract types are used in construction projects and are customized to meet the needs of each new build.

Lump Sum or Fixed Price Contract

A lump sum, or fixed price, contract includes a total fixed price for the entire project. The contractor estimates the total cost of the project, including costs associated with overhead and risk. With a lump sum contract, the contractor assumes all risk. Incentives or penalties can be included in the contract for timeline adjustments.

Cost Plus Contract

With a cost plus contract, the contractor is paid for actual purchases and labor costs. A pre-negotiated amount to cover the contractor’s overhead is also included. All expenses are classified as either direct or indirect.

In this type of contract, the owner assumes all risk and is involved in construction administration. In addition, there is no incentive to reduce labor costs by finishing ahead of schedule.

The most common variations for a cost plus contract are:

Cost Plus Fixed Fee
Cost Plus Fixed Percentage
Cost Plus with Guaranteed Maximum Price Contract
Cost Plus with Guaranteed Maximum Price and Bonus Contract

Time and Materials Contracts

With a time and materials contract, the owner and contractor agree on an hourly or daily rate. Similar to a cost plus contract, all fees must be included and classified as direct or indirect. Overhead and markup costs also need to be added, and owners can put a cap in place. Time and materials contracts are most often used for a small scope of work.

Unit Pricing Contracts

For larger scopes of work, builders and federal agencies will often use a unit pricing contract. This contract determines the payment for a specific task (i.e., the number of residential units), which is multiplied by the quantity of that task. With unit pricing, the exact price will not be known until the project is completed.

The type of project you are working on will determine what contract you will need. Always review your contract in full and discuss any questions with your builder or project manager.

December 3, 2019 0

New Construction: the Process of a Residential Build

New construction means you don’t have to deal with hidden issues that come with older homes, knowing you are up to code on everything, and you don’t have to compete for a highly desired home during a seller’s market. While building a new house is a process that takes time, patience, and open communication, the end result is a home built specifically for your needs and desires.

How long does new construction take?

Based on your plan, your builder or subcontractor will be able to estimate the timeline, but it’s essential to remain flexible throughout the process. The timeframe of new construction varies for every home. Factors that affect the process include the land being cleared and approved for building, the size of the house, weather conditions throughout the build, and change orders. In addition, if decisions about finishes and materials are put off, items may take weeks to arrive, pushing back the finish date.

Hire Professionals

When you choose who to work with, you can decide to hire a contractor, builder, or subcontractors for each part of the build. Contractors and builders will oversee the project from start to finish, so you don’t have to worry about hiring multiple people throughout the process. When hiring, take into consideration the experience and communication styles of the people you meet with. You will be working with these people for an extended period of time on your biggest asset, so take the time to interview and choose people you trust.

Site Preparation

Once you have a piece of property that is zoned for residential living, the first step is getting it ready for a new build. Depending on the state of the lot, this can including clearing land or tearing down an existing structure. Vacant land may also need work to reach electric, gas, and plumbing for the house.

Layout and Design

Working with an architect or builder, create the design of the home. The professionals you work with will help keep you on track so basic systems like HVAC and electrical work correctly. Communicate your overall vision, your style, and your must-have items. Once the floorplan is complete, you will be able to get into more specifics of each room. This can be a time-consuming step, as the number of options that go into the design of a home, from the layout down to the cabinet hardware, can seem endless. Be patient and begin with the overall vision before narrowing in on design elements.

Build

As the build progresses, you get to see your vision come to life. At this point, the professionals you hired take control, as they make sure the job is done correctly while adhering to code.

The build begins with pouring the foundation and framing the walls, floors, and roof of the house. From here, “the guts” are completed. This includes everything you can’t see behind the walls, including heating and cooling units, electrical work, and plumbing. During this time, SmartHome systems can also be installed. Workers will then close up the walls with insulation and drywall. At this point, you can really begin to see the vision come to life.

The next phase includes installing finishes and design elements. Starting with the floors and paint, then moving on to cabinets, appliances, and light fixtures. The final few weeks of the build include all the finishing touches.

Are you interested in a custom residential build? We’re happy to answer any questions. Contact us to learn more.

May 22, 2019 0

General Contractors, Subcontractors, Builders: Who should I hire?

When constructing a new home, deciding who to hire can be a time-consuming process. You want to be sure you hire someone who is trustworthy, does quality work, and sticks to budgets and timelines. But who exactly do you need?

General Contractors

General contractors (GC) can be an individual or an entire company, and oversee the entire construction site. They are hired for both residential and commercial projects. The first responsibility of a GC is to make an estimate of the entire project including the cost of materials, labor, and any subcontractors that will be needed. From there, a project manager will oversee the project, communicate with the homeowner, ensure materials are ordered and delivered on time, and oversee subcontractors. A big benefit to hiring a general contractor is they already have built a pool of subcontractors they trust. In addition, subcontractors will often consider projects for a contractor as a priority over a job for a homeowner. To learn about Horton Group as a general contractor, click here.

Subcontractors

Subcontractors are typically skilled in one specific trade, such as tile, drywall, insulation, or roofing. Subcontractors fill their contract directly with the contractor, so you do not need to worry about hiring each different subcontractor if you have a general contractor. If you are only updating one part of a room, such as installing new tile flooring, you may want to hire a subcontractor to complete the job.

Builders

A builder, like a general contractor, will see the project through from start to finish. The difference is that a builder often has a crew to complete the construction work, from foundation to roof, subcontracting only for specialists like electricians and plumbers. They also manage the project and communicate with the homeowner throughout the process.

No matter who you hire, you are entrusting another person or company to carry out your vision. Be sure to communicate your vision, budget, and timeline clearly so the outcome is what you want.

January 23, 2019 2