Construction projects in Louisiana are exciting, but they can also be complex. This is due in part to the fact that the project owner, builder and other parties will enter into various types of contracts with one another that will govern how the project will be completed and paid for. In general, there are four types of construction contracts that may play a part in any given contract.
First there is the lump sum contract, also called a fixed price contract. As the name implies, there is one total price in this contract that covers all activities related to the project. Incentives and penalties can be included in this type of contract. For example, there can be benefits for finishing the project early or penalties for finishing the project late.
Another type of contract is the cost plus contract. In this contract, one party will pay for the costs and expenses that the other party incurs directly from the project. These contracts must have provisions regarding how the contractor’s overhead costs and profit will be covered. There are a variety of types of cost plus contracts including: cost plus fixed percentage; cost plus fixed fee; cost plus with guaranteed maximum price contract; and cost plus with guaranteed maximum price and bonus contract.
A third type of contract is the time and materials contract. This type of contract might be a good choice if the scope of the project is undefined or lacks clarity. In general, one party will pay the other an hourly or daily rate. This type of contract must also cover any expenses that come up during the project.
Finally, there are unit pricing contracts. These contracts are often used by builders or the government. Unit prices are set during the bidding process. The project owner will determine what is required to complete the project and will then contract for the specific quantities of items necessary at a pre-determined price.
Each construction project is unique, with many parties involved. In the end though, project owners and builders want to ensure that they both benefit from their involvement in the project. This makes construction contracts a vital part of any construction project. Those who want more information on what type of contract might be right for them are encouraged to seek professional guidance from one experienced in construction law matters.