Legal Blogs

What are the Different Types of Construction Contracts?

This article will help to describe and explain the different types of construction contracts. Construction law aims to protect both builders and buyers or developers as they enter into agreements to improve real property. Whether you are building a structure from scratch or improving an existing structure, construction projects typically involve significant amounts of money changing hands over time. Construction projects can also be highly complex, with many different requirements and with significant potential for problems to arise. Types of Construction Contracts

If you are involved in any construction project, as a buyer or as a builder, you need to make sure you understand all of your rights under California law.  The Southern California construction law attorneys at Brown & Charbonneau, LLP can provide you with guidance on the different types of construction contracts and on which type of agreement is best for you.  We can also help to negotiate a contract so your rights are protected while an agreement is reached, and can assist both in reviewing contracts before you sign and providing representation in case of a breach of contract.

Different Types of Contracts Under Construction Law

Whether the construction project is for a new construction or to remodel or improve an existing structure, it is imperative that you choose the right type of contract to meet your needs and that you make sure the contract terms are fair to you.

The most common types of contracts that are used for construction projects include:

  • Lump sum or fixed price contracts. Lump sum contracts involve the buyer agreeing to pay a set price and the contractor or builder agreeing to complete the project for that set price. With this type of contract, the buyer has certainty because he knows what his final costs will be unless changes are made. The builder or developer takes on the risk, because if prices go up or problems arise, the buyer will not have to pay any more money.  Some lump sum contracts include allowances, which can mitigate risk to builders because if the buyer goes over the allowance, the cost is borne by the buyer.  Lump sum contracts can sometimes include benefits or incentives for completing projects under budget or in a shorter period of time, and can sometimes include liquidated damage clauses so the builder will have to compensate the buyer for being late to finish.
  • Cost plus contractsCost plus contracts involve the buyer paying the actual costs of construction and purchases plus an additional set percentage or amount for the contractor or builder. The owner takes on the risk here, because if it turns out the project is much more expensive, the buyer will be the one to pay for the cost of construction plus the profit margin. Cost plus contracts can be structured in different ways, including cost plus with the builder making a fixed percentage of costs; or cost plus with a fixed fee or set amount for the  builder.  It is also possible for a cost plus contract to specify a guaranteed maximum price, so the buyer can mitigate risk.
  • Time and materials contracts. A time and materials contract means the buyer pays for the time spent by the builder and his subcontractors and must pay for the actual costs of construction materials. There is uncertainty involved for the buyer here as well, since the buyer has to pay for extra costs or time overruns. Many time and materials contracts will contain maximum price clauses as well.

Brown & Charbonneau, LLP can provide advice on which of these contract types makes the most sense in your situation and can help to negotiate the final terms of your agreement. We have extensive experience with all types of construction contracts for both residential and commercial property development and we know how to make sure your rights are protected under California construction law.

How Our Construction Law Experts Can Help You

No matter what type of construction contract you create, you must know how to ensure the contract protects your interests and is reasonably favorable to you. There is a lot of money at stake and you do not want to sign a contract where you assume all of the risk and little or none of the reward.

The construction law attorneys at Brown & Charbonneau, LLP  have extensive experience representing buyers, developers, builders, and other professionals within the construction industry. We can help with all legal aspects of your involvement with a construction project, both during contract negotiation phase and when things go wrong.

Give us a call today at 714-505-3000 or contact us online to learn more about the legal assistance we can provide.