Exploring Different Types of Construction Contracts
When an owner and a contractor (or a contractor and a subcontractor) decide to work together on a construction project, a contract will be used to ensure that both parties meet their obligations. In other words, your contract helps ensure that you get paid, but it also verifies that you will fulfill the scope of work as stated in the contract. There are many different types of contracts, each with unique properties that can affect your bottom line positively or negatively.
You should never sign a contract without first consulting a Denver contractor lawyer to review your contract. Your experience on a project largely depends on the type of contract you are being asked to sign and the details hidden in the fine print. When you have an attorney review construction contracts in Denver, they will help you avoid potentially dangerous clauses, including:
- No Damages for Delays
- Broad-Form Indemnity
- Lien Waivers
In addition to contract review and revision services, our Denver contractor lawyers can help you determine which type of contract will give you the most protection or draft a contract from scratch for you. In this article, we’ll discuss four types of contracts: stipulated sum, cost plus, design-build, and Integrated Project Delivery (IPD).
Stipulated Sum Contract
Also known as a lump sum or fixed-price contract, a stipulated sum contract is a straightforward construction contract that requires a clear scope of work and schedule for the contractor to accurately estimate project costs. If this information isn’t available, a stipulated sum contract can be detrimental as cost overruns are common in the construction industry and these contracts don’t offer any monetary relief. On the other hand, contractors can request a higher markup as a contingency for cost overruns. Furthermore, if a project comes in under estimate, the contractor’s profit margin will increase.
When the scope of work is ill-defined, a cost-plus contract is usually the best option for contractors. These contracts simplify some of the financial complexities that must be dealt with directly in other types of contracts. Basically, the owner agrees to cover the cost of all work in addition to the contractor’s overhead and profit. When the project comes in under budget, the owner benefits. Cost-plus contracts come in numerous forms, including:
- Cost Plus Fixed Percentage
- Cost Plus Fixed Fee
- Cost Plus Fixed Fee with a Guaranteed Maximum Price Contract
When the owner wants you to handle design and construction of a project, a design-build contract may be used. These contracts are often used by contractors who have strict deadlines. It’s also worth noting that these contracts are typically the result of negotiations, not the bid process. Contractors who take on this type of contract must hire architects, engineers, subcontractors, suppliers, and more. These contracts can be complex, so it’s always a good idea to consult an attorney who can review contracts in Denver before diving in.
Integrated Project Delivery Contract
IPD contracts are designed to increase efficiency, decrease waste, and ensure that all parties are working together in harmony. This is achieved by embracing the collaborative nature of construction and applying a new framework to the way high-level roles are handled. Ideally, this results in increased transparency, but it could require a lot of fine-tuning and the assistance of a Denver contractor attorney.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.