Construction contracts is an agreement between two or more companies or parties that bind them in their exchange of promises that is guided by laws of government. These agreements are made to ensure that the parties involved will make whatever they agreed to make and to provide certain punishment to those who violates it.
This agreement must be precise and all term must be clarified. This includes the responsibilities and rights of each party, how long is the duration of the contract, what are the consequences of the contracts and other important information.
Construction contracts have different kinds. One kind of construction contract is between two parties. This contract is made if the construction will be done by only one party. Another type of construction contract is several parties contract. This kind of contract has two classes. One of the two classes is when one party didn’t accomplish the tasks given and all the involved parties will be liable. This kind of contract is very difficult. The project must be completed and if one can’t accomplish their respective task, all will be punished. This is done to ensure that the project will be done and to ensure that all parties will help each other’s party to avoid unexpected things. On other hand, the other class is the inverse of the first class. In this contract, every party will work on themselves. One party has nothing to do with another. This class is commonly used because the party involved in a construction contract would prefer this type of contract than the other type.
There are several types of construction contract. These are lump sum contract, unit price contract, cost plus contract, incentive contract and percentage of construction fee contract. Each contract is use in different situation.
Lump sum contract, also known as “Fixed Fee Contract”, is commonly used in if the consulting engineer will be the one to compute the cost of all materials and the cost of labor that will be done. This includes the length of the project.
Unit price contract is use base on the estimated material that will be used and their respective prices. This is commonly used by engineers. The final price of the project is dependent on the cost of material and the number of hours spent in making the project. Cost plus contact is use when the purchaser will be the one who will buy the materials needed and the amount of labor done plus an amount that will be given to the contractor that will serve as his/her salary. This value is commonly a percentage on the cost of material and the cost of labor. This contract may be specified as Cost + Fixed Percentage Contract, Cost + Fixed Fee Contract, Cost + Fixed Fee with Guaranteed Maximum Price Contract, Cost + Fixed Fee with Bonus Contract, Cost + Fixed Fee with Guaranteed, Maximum Price and Bonus Contract and Cost + Fixed Fee with Agreement for Sharing Any Cost Savings Contract. Each of these has their own different purposes.
Incentive contract is base on the performance of the project according to its target. Higher profit means greater salary. This contract has two categories which are the Fixed Price Incentive Contracts and Cost Reimbursement Incentive Contracts
The last one is the percentage of construction fee contracts. This is the most common contract used as construction contract. Compensation depends on the percentage of the cost of materials and cost of labor.
Construction contracts start in defining who are the witnesses are. These witnesses will prove that both parties agree to the content of the said contracts. This will ensure that the contract is valid and the violator, in case there is one, can not lie because there are witnesses involved. The signatures of the witnesses are needed to prove that they fully understand the contract.
Construction contracts are divided in several parts. Each part contains their detailed information. The first part is the definition. The definition of the contract is needed to know what the goals of the said contract are. The purpose of the contract is stated in this part.
The next part of the contract is the appointments of the construction agents. This part of the contract determines the appointments of the construction agents. This part also says that the construction agents accept the entire job that is written in the contract. The scope and limitation of the jobs are also stated. This also includes how long will the construction agents will work. The schedule and tasks of all the agents involved will be clarified in this part.
The next part of the construction contract is the financial improvements of the project. In this part, all the financial aspect of the projects is written in this part. This includes the insurance, the cost of the materials that will be used in the said project etc. If violations are made, the costs of damages are also written in this part. All condition must be strictly written. This is to avoid any excuses that may exploit the contract. The kind of payment is also written in this part. The time, schedule and amount of payment are located here. The punishment for violation is also located in this part. Sometimes a punishment in this part is by giving an interest to the amount that is not paid. Sometimes, some contract give a grace period for the payer to pay his/her debt.
The next part is all about the construction agency. All about it is discussed precisely in this part. Waivers are also located in this part. The limitations of the agency and their rights are also stated here.
The last part of the construction contract is the miscellaneous part. In this part, the entire topic that is not discussed will be discussed here. This includes the notices, successors and assigns, governing laws, amendments, counterparts, severability, exercise of agent lessor’s rights and the limited liabilities.
Violation in any construction contracts can be sued with breach of contract. This is the most frequent case that involved a contract. This case is subjected to huge payment and will be imprisoned. The amount of money and the length of imprisonment depends on the damages done by the violator.
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