MEANING OF CONTRACT AND TYPES OF CONTRACTS IN CONSTRUCTION
A contract is a legally binding agreement between two or more parties that outlines the terms and conditions of their agreement. It is a voluntary and consensual agreement in which each party agrees to give or do something in exchange for something from the other party.
Contracts can be written or oral, but written contracts are usually preferred as they provide clearer evidence of the agreement and help to avoid misunderstandings or disputes. A valid contract typically includes an offer, acceptance, consideration (i.e., something of value exchanged between the parties), and mutual assent or a meeting of the minds.
Contracts can be used for various purposes, such as for the sale of goods or services, employment agreements, rental agreements, and construction contracts. The terms of a contract can vary depending on the type of agreement and the specific needs of the parties involved.
There are several types of contracts commonly used in the construction industry, including:
- Lump Sum or Fixed Price Contract: This type of contract sets a fixed price for the entire project, regardless of the actual costs incurred during construction. The contractor is responsible for managing the costs of the project within the agreed-upon budget.
- Cost Plus Contract: In a cost-plus contract, the client pays the actual cost of the project, plus a predetermined fee or percentage to the contractor for their services. This type of contract is often used when the scope of the project is uncertain or when changes to the project are likely to occur.
- Time and Materials Contract: This type of contract involves the payment of labor, materials, and equipment costs, plus a predetermined fee for the contractor’s services. This type of contract is used when the scope of work is uncertain, and the client wants more flexibility in adjusting the project as it progresses.
- Unit Price Contract: A unit price contract is used when the project involves multiple similar tasks or items that can be priced individually, such as paving a parking lot or installing light fixtures. The contractor is paid based on the unit price for each item completed.
- Design-Build Contract: In a design-build contract, the contractor is responsible for both the design and construction of the project. This type of contract is often used when the client wants to streamline the construction process and reduce the number of parties involved.
- Joint Venture Contract: A joint venture contract is used when two or more contractors agree to work together on a project, sharing both the risks and rewards of the project. This type of contract is often used for large, complex projects that require multiple areas of expertise.
