What is one common type of construction contract?

A fixed-price contract is a prevalent type of construction contract because it establishes a predetermined sum for the entire project, allowing both the client and the contractor to have a clear understanding of the financial obligations up front. This type of contract provides price certainty for the client and ensures that the contractor will complete the work within the agreed-upon budget. The contract typically includes specific deliverables, timelines, and terms of payment, which helps in effectively managing both parties’ expectations.

This format is advantageous in many scenarios as it allows for streamlined project management and financial planning. If the contractor completes the project under budget, they can benefit from the savings, which can provide an incentive to maintain efficiency without compromising quality. Conversely, if unforeseen issues arise that require more resources, the contractor bears the risk, which motivates them to carefully assess project parameters at the beginning.

In contrast, other options such as hourly contracts involve payment based on the actual time spent, leading to variable costs that can fluctuate. Open-ended contracts do not define a maximum price, making budgeting difficult for clients. Labor-only contracts, while practical in some scenarios, typically cover only labor, leaving material costs and other factors open-ended. The fixed-price contract thus stands out for its clarity and stability in construction projects.