There are four basic types of construction contracts: lump sum, unit price, cost plus, and time and materials. Each type has its own advantages and disadvantages, so it’s important to choose the right one for your project.
Lump-sum contracts are typically used for small projects with a known scope of work. The contractor agrees to complete the work for a fixed price, regardless of how much time or materials it ends up taking. This type of contract can be riskier for the contractor, as they may end up spending more than they anticipated. However, it can be less risky for the homeowner, as they know exactly how much the
the project will cost from the start.
Unit price contracts are often used for larger projects where the scope of work is not fully known in advance. The contractor calculates their price based on the unit cost of each component of the project. This type of contract can be more flexible for both the contractor and homeowner, as it allows for changes to be made during the course of the project. However, it can also be more expensive, as the
contractor may end up charging more for certain materials or tasks.
Cost-plus contracts are typically used for very large projects.