The most common types of construction contracts in California

There are several types of construction contracts builders and customers can enter into before the start of a new project.

A contract, according to Cornell Law School, is a mutual agreement between two parties that contains legally enforceable stipulations. Before builders begin a construction project in California, they first draft a contract for their client to look over and agree to. Below are some of the most common construction contracts two parties may enter into.

Lump sum contract

In a lump sum contract, otherwise referred to as a stipulated sum, the contractor agrees to provide pre-determined services for a certain, fixed price. Through these contracts, the client hands over all the risk to the contractor. In turn, the contractor can ask for a higher final price to manage unforeseen situations appropriately. To develop a lump sum contract, the builder will estimate material costs, labor costs, and a specific amount to cover profit margin and overhead.

Unit price contract

Unit price contracts break up the work to be done into separate parts, which is usually done by the specific type of trade. The overarching price of the project is based on the separate quantities needed to complete the work. For instance, since painting is usually completed on a square foot basis, the total cost of this aspect would be figured into the total cost of the contract.

Cost plus contract

When cost plus contracts are developed, the agreement stipulates that the buyer consents to pay the total cost of materials and labor as well as the amount the contractor specifies for profit and overhead. These contracts are used in cases where the plans for the project are uncertain as well as the material, equipment, and types of labor needed. The owner will keep the savings if the actual cost of conducting the project are lower than estimated.

Incentive contract

Through an incentive contract agreement, compensation is determined by the performance of the contractor in addition to an agreed target for budget, schedule, and quality. There are two types of incentive contracts: cost reimbursement incentive contracts and fixed price incentive contracts. Both have benefits depending on the proposed scope and type of project presented to the contractor.

Contact an attorney

Those who want to come to an agreement with a contractor in California should be careful about the type of contract devised and what it entails. For this reason, customers turning to a contractor should reach out to an attorney to ensure the details of their contract are legally sound and beneficial for both parties.