Construction Contract Agreement Meaning

A construction contract is a document that sets a date and determines which parties will participate in the construction process. As a general rule, the contractual agreement between the project owner and the contractor or supplier providing the requested services is executed and contains several sections of clauses that define the scope, terms and conditions of such an agreement. With this type of contract, the owner has more powers in monitoring, inspecting and auditing the project at regular intervals before final payment. Therefore, the risk is transferred from the owner to the contractor and this would be an attraction for the client. [12] As no two construction projects are the same, there are many types of work contracts to meet the needs of all parties involved. Knowing which contract best fits the project helps owners, contractors and suppliers manage risk and ensure that work and payment go as smoothly as possible. This type of construction contract is generally not used for large construction projects and is more commonly used for small jobs such as repair or maintenance work. With unit price contracts, it is easier to adjust prices when the scope of work changes. Contractual agreements vary or may have several changes depending on the contract performed: This is a type of negotiated contract where real and direct costs are paid and additional fees are charged for overhead and profit is usually negotiated between the parties. The owner has more control over the project; however, the risks are transferred to the owner.

[11] Practical completion occurs when the contractor returns the land to the owner, usually at the time the work has been completed and accepted by the client. A practical certificate of completion usually confirms this acceptance. As a rule, half of the retention costs are released, the contractor`s possible liability for lump sum damages ends, and the period of repair of defects begins. [24] Another application of the piping function is that a well-written construction contract requires the parties to consider and agree on issues that they may not even consider at the beginning of a project, but that are common in the particular type of project and could very well become major problems during execution. The details of the subcontractor are also often included in a construction contract if a contractor plans to lease some of the work at the workplace. A general contractor may take on some or all of the tasks related to a construction project or involve other companies and individuals. During subcontracting, the general contractor is responsible for managing the contracts and payment terms with the subcontractors. The project owner usually does not interact with subcontractors. In general, this contract is only suitable for construction and supplier projects where different types of items, but not their numbers, are precisely identified in the contract documents. If a clause is not reduced to writing (if the contract, whether written or oral, is silent on the matter), the law may provide for a standard period when a problem arises. By reducing these conditions to the letter, the parties can control how this issue is handled and avoid imposing a standard time limit on them that is not favourable to their position.

Lawyer Cory Barack specializes in business, real estate, estate and energy law. He can help you with oil/gas leases, easements, real estate sales, drafting contracts and wills, business start-ups, and dispute resolution. He is admitted to the Ohio Bar and is located in eastern Ohio. The completion of a section refers to a provision in a construction contract that allows for different completion dates for different stages of the work. This is common for larger projects that are completed in stages, allowing the customer to take possession of the finished parts while construction continues on to others. [25] In the case of unit price contracts, most of the risk lies with the owner, as he must reimburse the cost of the unforeseen units that are added. However, the transparency they offer is a huge advantage for everyone involved. Since the owner does not pay for cost overruns, guaranteed price contracts transfer high risk to contractors. Given this risk, contractors can use something that uses good cost estimating software. Order calculation is an important accounting process for any construction project, and a solid estimate minimizes risk by helping contractors avoid overcharging or underloading the owner. According to the Construction Specifications Institute `CSI` (CSI) contract letter axiom, “say it once and in the right place”, it is important to indicate in one place what constitutes the contractual documents (in preference to the owner-contractor agreement).

In order to increase the potential for uniform interpretation, the list of contractual documents should be complete and unambiguous and should not contain documents which should rightly not be contractual documents. As a percentage of cost, the owner pays more than 100% of the documented costs, which usually requires a detailed expense report. [15] In this type of contract, actual labour costs plus a certain percentage are paid to the contractor as a profit. Various contractual documents, drawings, specifications are not required at the time of signing the contract. The Contractor must keep all records of material and labour costs and the Contractor must be paid accordingly to the responsible engineer. This type of contract is suitable for emergency work such as difficulties related to foundation conditions, construction of an expensive structure, etc. The U.S. Federal Acquisition Regulations explicitly prohibit the use of this type for U.S. federal government contracts. [16] Unit cost contracts offer more flexibility in case of discrepancies in quantities on the ground and are therefore still used for heavy construction and motorway contracts.

[19] Associated General Contractors of America (AGC) states that this type of contract is barely used for the entire project and is mainly used for contracts with subcontractors whose identification of different quantities is significant and who are commonly used for repair and maintenance work. .