Choosing a Construction Contract
- Answer:
There are basically two types of construction contracts – a Lump Sum Contract and a Time and Material Contract. Various hybrids have evolved over the years trying to address the weaknesses of each. For all the options that have been invented there is still no perfect construction contract.
Lump Sum Contract
While a lump sum contract appears to be the 'safest' from an owners point of view, it requires an enormous amount of preliminary work to ensure that the scopes, requirements (both municipal and professional) and expectations are clearly and contractually established. Costs can be significantly inflated to offset the burden of risk. Work or material that is not specified, or requests by the municipality or professionals not known at the time of bidding will also lead to extra costs to the contract.
Time and Materials Contract
A time and materials contract is often negotiated when site conditions, job status and specifications have not clearly been identified. Based on the drawings available and some assumptions of the conditions we can create a preliminary cost summary that will be reset once the owner and the contractor have had the time to identify all line items, requirements, and specifications to the satisfaction of all parties. This reset budget can be in the form of a lump sum contract or a time and material contract (a hybrid that we could craft together).
