Understanding Construction Contracts

Posted by NK Design & CO on May 20th, 2021

Construction project management involves a set of complex details and therefore it helps to understand the best practices as well as common mistakes. Irrespective of the size of the team or project, it is crucial to outline the expectations upfront. Construction project management Toronto can also involve outside specialists for completion of certain parts of the work and construction contracts help in bridging the gap between contractors and others hired by the contractor so that everybody is aware of what is needed. 

Construction contract

A formal agreement between the project owner and the contractor outlining the scope of work entrusted to the contractor, the time frame for completion, the budget, quality of various inputs, cost escalation if allowed and term governing escalation, penalties, and bonuses if any, and any other details that the project owner desires to put into the contract. Construction management contract Toronto will also specify the scope of sub-contracting, qualification of sub-contractors, responsibility of the main contractor with regard to jobs executed by the sub-contractor, contingencies, and plans to meet those contingencies 

Why you need a construction contract

When you enter into a construction project management Toronto contract, the project owner and the contractor are protected with regard to various details of the project work being outsourced to the contractor. The document will enshrine the time frame completion of the project, communication system for reporting progress, potential disputes and dispute resolution process, changes needed during the progress of the contract and approval of such changes, and all other material facts that impact the project execution. A construction contract can also be viewed as a roadmap of the entire project. 

Parties to a construction contract

Parties to a construction contract are the project owner and the contractor. The project owner is either not equipped or not willing to handle all aspects of the project himself or does not have the time to devote to the project on account of other commitments.

This brings into play a construction contract. The parties to a construction contract work together to put in place the terms governing the contract and agree on the time frame for completion and a payment schedule. A schedule of payment linked to stipulated milestones is an essential part of the construction contract. 

There are different types of construction management contracts

Construction management contracts Toronto is not like one size fits all. The characteristics vary from one project to the other. Therefore it is essential that you are aware of what type of construction management contract suits your needs.  

Lump-sum contract

A lump-sum contract as the term signifies comes with a fixed price for the entire job. The price enshrined in the contract will therefore include the cost of all materials, time, and other inputs regardless of any issues or changes. This type of contract protects project owners against unforeseen setbacks and changes.

Cost-plus form of contract 

In this form of contract, the contractor is reimbursed all the expenses as they occur. Notice also that budget control in this form of contract is in the domain of the project owner. The contractor on the other hand receives a pre-set percentage of the total contract as his remuneration and disbursed at pre-agreed intervals. Some contracts may also include a bonus payable to the contractor as an incentive for cost and time control of the project. 

Materials and time contract

When the project owner has little or no idea of the scope of a project, the materials and time contract comes into play. In this case, the contractor charges a specified amount for the materials consumed and the labor involved. Because of the uncertainties in this type of contract, everything should be specified in detail including potential eventualities. Provision should also be made for incentives to complete the project ahead of the specified time and/or budget. 

While these are the 3 major types of construction contracts, you can speak to a construction project management business Toronto for specific guidance.