Construction Agreement: Everything You Need to Know
Construction agreement is a contract between the owner and a general contractor that outlines the details to work that is to be completed on the property.3 min read
A construction agreement is a contract between the owner of a property and a general contractor that outlines the details pertaining to work that is to be completed on the property in question.
What Is a Construction Agreement?
Construction agreements are written documents between property owners and general contractors that outline things like:
- Construction projects
- Renovation work
- Any other type of work that is to be carried out on the property in question
In most cases, a construction agreement is between the property owner and the supplier or contractor that has been chosen to provide the services that have been requested. These contracts contain multiple clauses defining:
- The scope of the work to be completed
- The terms of the agreement
- The conditions of the agreement
You should consider putting a construction agreement in place if:
- You're a contractor that has been put in charge of building a new property or renovating an existing one
- You need to hire a contractor to build a property or renovate an existing one
Misunderstandings are somewhat unavoidable during the course of a construction project. However, when the details of the work to be completed are listed in a construction agreement, it can help make life easier for everybody involved.
Construction agreements are also commonly known by other names, such as:
- Construction contract agreements
- Construction contracts
- Construction management agreements
- Service agreements for construction
- Construction service contracts
- Contracts for construction
- Construction contractor agreements
- Contractor agreements
Construction agreements are appropriate whenever you find yourself on either end of a building, renovation, or alteration project on a piece of property. Say, for example, you've finally decided it's time to start building your dream house. Construction of your new fantasy home may take much longer than expected due to unexpected and unreasonable delays on the contractor's end or higher costs than you were expecting.
On the other side of things, imagine you're a contractor looking for ways to grow your business by taking on larger construction jobs. No matter what side of the fence you're on, it's important to make sure there is a written construction agreement in place to help prevent issues arising on the part of either of the involved parties.
Sections Included in Construction Agreements
There are a few key sections that should be included in every construction agreement that cover the following:
- The project description
- The contract price
- The basis of payment
- The construction schedule
- The contract document list
- The scope of the construction
- Laws pertaining to the contract
The project description is a brief summary of the construction job and what it should entail, why it is happening, etc. This is not meant to be a detailed description, but should touch on the most important ideas or aspects of the project and make sure they are addressed. Most project descriptions are either a summary of included items or simply a short paragraph that defines what needs to be accomplished.
The contract price section describes what kind of price structure has been agreed upon and the total amount to be paid upon completion of the job. This section should also make provisions for adding to or deducting from the total price of the contract and outline how and when these adjustments can be made. Deciding on the right price structure for a contract can be affected by a number of factors, and there is no one specific solution that is right for every situation. The most important thing is to come to an agreement on pricing terms that both parties can agree on.
The payment basis section of the agreement provides details pertaining to how the contractor is going to be paid. No matter what the preferred method of payment is, this concept should also provide details for the percentage that should be held back on every payment application. This section also provides details regarding when payments are due, what the penalties for paying late will be, and any interest that is accrued or any other situations that relate to invoicing and payment. Generally speaking, there are three types of arrangements that are settled on for pricing and payment arrangements:
- Lump sum
- Cost or cost-plus
- Unit price
The specific arrangements selected will be determined largely by what works best for both involved parties.
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