Contract Price: Everything You Need to Know
A contract price is a total amount that is agreed upon by two parties where the project owner or client, known as the principal, pays the contractor when they complete the terms of the contract. 3 min read
2. Contract Price Example
3. Guidance for the Contract Price
A contract price is a total amount that is agreed upon by two parties where the project owner or client, known as the principal, pays the contractor when they complete the terms of the contract. This is according to the terms and conditions of the contract and any other modifications. The contract price is how much money one person receives after they have provided a service or good that was outlined in the contract.
What is a Contract Price?
An example of a contract price is when two parties enter into a contract to sell a house for the cost of $100,000. This means $100,000 is the contract price.
This is also a term that is used in taxes when it comes to calculating how much gain was realized for an installment sale. This is equal to the selling price, minus any mortgage debt the buyer assumes, as well as any liens that were collected for the seller's equity. The gross selling price is equal to the contract when there are no mortgages that are assumed.
If a mortgage is assumed, the contract price will be the gross selling price, minus the mortgage amount. Any mortgage amount that goes over the expenses of sale and seller's basis will also be added. Another term for a contract price is a contract sum. The contract price often includes a down payment, possibly several continuing payments, and will end with the final amount that is paid in order to close the contract.
Contracts are often used for the following:
- Mobile phones
It is important to analyze the contract price cost so a bad deal will not occur. Varying contracts exist to serve differing purposes. For example, a landscaping contract does not have a final date of completion or irregular expenses. Instead, the nature of the type of agreement has a payment schedule. Based on this, contract prices for landscaping are paid on a monthly basis.
On the opposite end of the spectrum, a construction job has a date for final completion and irregular expenses. The contract price will be different in this case, as it will often have continuous payments, a down payment, and a retainer when final construction is complete.
Contract Price Example
Let's use Brad, an agent for big music artists, as an example of how a contract price works. Brad works with negotiations often and helps his artists negotiate contracts on a daily basis. Brad's main factor of failure or success in his line of work is what the final contract price clause comes out to.
The final contract price depends on many factors, including how much the artist is paid per tour or concert, how much they are paid for each album, the cost of accommodations and travel, as well as for their living expenses. Brad knows that even small differences in the contract can have a major effect in the end. If he forgot to include living expenses, the artist might not have been able to show anything in the end for all their work. Brad constantly needs to be aware to make sure nothing important is left out of the contract. For any professional who negotiates contracts as part of their job, the consequences can be dire if it is not done correctly.
Guidance for the Contract Price
When certain conditions are written in the contract, there needs to be consideration given to the timing and amount of the payments that go in the contract. Because contracts are often based on one lump sum price, the contractor is taking a risk that costs might change after their design. Tenders might be required to value variations, which can include detailed price breakdowns, unit rates, quantities, and other information on pricing. This can also be helpful when it comes to assessing interim payments.
However, this information might not have been competitively priced. When the preparation of the tender documents is happening, the employer has to decide if they want to accept being contracted to the breakdown of the tenderer. If they do not, they need to make sure their representative has enough expertise to value variations.
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