Construction contracts lay out the rights and responsibilities of the contractor and the project owner. There are a variety of construction contracts, and depending on the type, one party may benefit from a specific type of contract more than the other party.
Each contract carries with it advantages and disadvantages that may benefit the contractor or the owner. A lump sum contract is an agreement for a fixed sum. The contractor agrees to complete the scope of work for a fixed price and the project owner agrees to pay the contractor the lump sum price.
The price reflects the cost of performing the work, the purchase of material and the markup for overhead and profit. The advantages of this type of contract are that the owner carries minimal risk, the cost is anticipated and the contractor may make more profit if it takes less manpower and materials to complete the project than anticipated.
The disadvantage is that the contractor carries the risk if he underestimated the cost of the project. In addition, changes in the scope of a project can be expensive, and the contractor may use low-grade materials to save costs and increase profit. A time and materials contract is an agreement where the owner agrees to pay the contractor on an hourly basis, plus materials. The advantage for the contractor is that he does not have to anticipate the cost of completing the work as in a lump sum contract, and the advantage for the owner is that he will pay for the actual time worked.
The disadvantage is that the contractor may work slowly because he is being paid for his time. In a design-build contract, one contractor is in charge of designing and building the structure.
The advantages are that the owner may save money by having one party implement two phases of the project, and the builder will understand the project since he implements the design phase as well as the building phase.
The disadvantage is that the project owner must provide substantial detail about the project at the bidding stage since the contractor must determine the cost of completing the project. A unit price contract requires the contractor to fix a price on each unit of work. The work, therefore, is broken down into parts.
The pros of this type of contract include the flexibility in adjusting the scope and the fact that it is not necessary to know the complete design. The cons of this type of contract include the unknown cost to complete the entire project and a potentially inaccurate determination by the contractor of the quantities needed.
Jessica McElrath has been a freelance writer since By: Jessica McElrath.
Contract Employment: Types, Advantages and Disadvantages
Lump Sum A lump sum contract is an agreement for a fixed sum. Time and Materials A time and materials contract is an agreement where the owner agrees to pay the contractor on an hourly basis, plus materials. Design-Build In a design-build contract, one contractor is in charge of designing and building the structure.
Unit Price A unit price contract requires the contractor to fix a price on each unit of work. About the Author.Cost reimbursement contract advantages and disadvantages are the benefits of an agreement in which the contractor is reimbursed for actual project costs.
Cost reimbursement contract advantages and disadvantages are the benefits of a legal agreement in which the contractor is reimbursed for his or her actual project costs. Other types of legal contracts include fixed price and time and materials. Cost reimbursement contracts, also called cost-plus contracts, are often used for research projects, construction, and other undertakings that will require the purchase of materials.
Because the cost of these materials is unknown when the contract is written, the contracting party agrees to reimburse the contractor for the full cost of materials. Usually, the contractor will also be paid a fee on top of the materials cost. These contracts sometimes include clauses that offer financial incentives when the contractor exceeds performance targets or schedules or decreases costs.
Unlike a cost-plus contract, a fixed price contract specifies an exact fee for the work to be done, which means the contractor may earn less profit if the materials cost more than anticipated. An unscrupulous contractor may cut costs on materials to increase his or her profit. Cost reimbursement contracts are best when project flexibility is needed, such as when the project is high-risk or the scope of work is unclear at the outset.
Federal agencies, particularly defense agencies, commonly use this type of contract, including the National Weather Service, Federal Transit Administration, and Department of Defense.
Cost-plus contracts can be structured in different ways to provide profit beyond the cost of materials. These include:.
For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way. Additional administration and oversight are needed to ensure that the contractor adheres to cost controls and other austerity measures. When using this type of contract, it is prudent to establish a maximum limit for materials costs, provisions on how reimbursements will be made and costs documented, and what costs can be reimbursed.
If you need help with a cost reimbursement contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
Cost Reimbursement Contract Advantages and Disadvantages Cost reimbursement contract advantages and disadvantages are the benefits of an agreement in which the contractor is reimbursed for actual project costs. What Are Cost Reimbursement Contracts? Types of Cost-Reimbursable Contracts Cost-plus contracts can be structured in different ways to provide profit beyond the cost of materials.
These include: A cost plus fixed fee contrac t in which the contractor receives a designated amount over the cost of materials. This can be a completion contract in which the end project and cost report must be delivered for the fee to be received, or a term contract in which the contractor must put a certain amount of effort toward the project for a definitive time period before the fee is received.
After this period, the term contract can be renewed.Following are the different types of engineering contracts for the execution of civil engineering works. In item rate contract, the contractor quotes his rate per unit of each item of the construction. An estimate of bill of quantities is done accurately. So that quantities of each item of work to be executed and the contractor enters the unit rate against each item of work.
The basis of the agreement is thus the unit rate of each item. A little variation in estimated quantities must be agreed by both the parties. The rate of the contractor for a unit of an item includes materials, labor. Overhead cost and -profit. This contract is more important when the quality of work, but not the exact quantities of the items to be executed, is previously known. Major public work contract are if this form of contract.
In this form of the contract, the department draws up the schedule of items according to the description of items sanctioned in the estimate with the quantities, units, rates, and amounts shown therein. The contractors are required to offer to carry out the work at par with the rates shown in the bill of quantities or percentage above or below the rates indicated the bill of quantities of the tender.
The percentage above or below or at tendered by the contractor applies to all the items. In this form of contract P. There quotation must be as per drawing, design, and specifications supplied to them with the tender within the specified time.
A schedule of rates is also provided to the contractor, to work out the cost of extra items or omissions. In case the contractor abandons the work before completion, he is not entitled to payment for the portion of work already done, however substantial it may be. All in contract is considered rate now, but considered first because in it the owner ceases to be the promoter and delegates a large firm or consortium to perform both design and construction. Under this contrsct, the owner specifies his requirements and also the broad and general outline of the proposed work and the contractor has to submit full particulars of detailed investigations.
Designs and construction cost including maintaining the work for a limited period. The two parties agree to the terms and conditions of executing the project through all the above phases. This form of contract is suitable for some exceptional types of works and is seldom adopted for normal works.
The works are most suited to this from are industrial facilities where firms are in the market with say patented processing plants. Sometimes, the owner is in a position to purchase the required materials himself In such cases, he invites tenders only for the labour work. The contractors put up their rates for the labour per unit execution of each item. It is necessary to state that these rates include:.
The overall responsibility of the work is of the contractor, and he has to arrange in such a way that the proper rate of progress is maintained for the work. The owner has to see that the necessary materials are brought on-site as and when required. In Material supply contract offer their rate of supply for the required quantity of materials, inclusive of all local taxes, carriage and delivery charges to supply the place of construction within the time fixed in the tender.
This type of contract is generally used when the purchase of materials viz. There should be supervision on supply of material as the case may be when delivery is taken.
A piece work agreement is where the only rate is agreed upon without reference to the total quantity of -work or time, and that involves payment of work done at the stipulated rate. In case of any work valued up to Rs.A multinational corporation can afford in-house staff to handle any and every situation.
When you're a small business or a startup, that's not so easy. By outsourcing services to freelancers, you can find someone to take care of bookkeeping, marketing or other projects outside your skill set. You don't need a written agreement to hire freelancers, but the advantages of contracts for services are huge. It's often cheaper to hire a contractor than an employee, even for long-term work.
Freelancers don't get benefits, unemployment insurance or worker's comp and they pay their own taxes. The IRS scrutinizes businesses employing freelancers to confirm the contract workers aren't really misclassified employees. One of the advantages of contracts is that a written agreement can clarify your relationship to, for example, the contractor that handles your billing or your IT needs.
If the IRS audits you, the contract helps show that the relationship is legitimately freelance. Suppose you put an IT consultant on retainer to check your security, patch security holes and restore your website if it crashes. You can do it with a verbal agreement, but that makes it easy to overlook important details:. Among the advantages of contracts are that negotiating an agreement and signing it gets the two of you on the same page.
Benefits of Fixed Price Contracts: What You Need to Know
A good contract spells out exactly what you're paying for. It reduces or eliminates misunderstandings about what "prompt service," for example, really means. A good contract describes the scope of the project and the price. It can, and probably should, cover a lot more:. The advantages of contracts for services are considerable, but there are some negatives too. One is that contracts that are badly written may not give you the results you want. An agreement that doesn't conform to contract law won't hold up in court.
For example, suppose your ad agency's contract with a freelance copywriter includes a non-compete clause banning him from selling his services to your clients.Read this article to learn about the cost-plus contract, its advantages, disadvantages to contractor and contractee. Cost-plus contracts provide for the payment by the contractee of the actual cost of the contract plus a stipulated or agreed profit.
Thus under cost-plus contract the contract price is determined by adding to the actual cost of direct material, direct labour and direct expenses, a certain amount to cover the overhead costs of the contractor and an agreed profit. In such cases cost-plus contracts are advantageous both to the contractor and contractee as neither party stands to lose; a fair price is offered by the contractee and a reasonable profit accrues to the contractor.
All agreed costs are recovered. Moreover in cost-plus contract, no clear-cut line can be laid down regarding the items of cost to b included or excluded from the cost-plus calculations. The other difficulty is to decide the rate of reasonable profit to be added in the cost. Process Costing: Meaning, Features and Definitions.Why don't fictional characters say "goodbye" when they hang up a phone?
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Unanswered Questions. Credit Reports. Labor and Birth. Business Plans. Wiki User In item rate contracts means each and every work of the building having an separate rate. Related Questions Asked in Math and Arithmetic How do you get the rate when the base and percentage is given? The law specifies that credit contracts must include the total cost of the loan, the finance charge over the life of the loan, the Annual Percentage Rate, the schedule of payments and the amount to be financed.
A percentage is always a comparison to Asked in Literacy What is the percentage rate of people who can read and write called? Literacy Rate The percentage rate of people who can read and write is called the literacy rate. Asked in Percentages, Fractions, and Decimal Values Can you give some examples in finding the rate when the base and percentage are given?
The rate of change is the change divided by the original value. This answer, converted to a percentage is the percentage rate of change. Asked in Math and Arithmetic What describes annual percentage rate? An annual percentage rate is the average percentage change over a period of a year. The percentage change is the change divided by the initial value, expressed as a percentage. Asked in Math and Arithmetic What describes a annual percentage rate?
A measure of the cost of credit expressed as a yearly interest rate.Contract employment is a situation when employees are hired for a particular job and they are paid at a specific rate. Contract employment is for a particular time duration and does not extend beyond that. It is related to a specific kind of work which asks for skills or expertise in that job. Mostly contract employment is seen as a great opportunity and employees learn a lot on job but the temporary nature of it creates doubts in the mind of the employees.
When one goes through the nature and type of them, it will help in taking a decision which is beneficial for the ones looking for employment. Contract employment can be defined as a temporary time period of employment done on a contract basis. It is seen that many times only the temporary nature of it is attached to the definition of contract employment. It is much more than that. The different type of contract employment will provide an indebt look inside the options.
These employment opportunities have their own pros and cons. Employees can check which one is for them, which one will provide them, what they are looking for. Part-time contract has work responsibility and protection like that of a full-time employee, the difference is of the number of working hours.Difference between Tender and Contract documents
A part-time employee generally has limited working hours that are defined at the time of employment. They also have a fixed rate of payment. This can be decided based on the number of hours an employee work or work completed against the project.
Education, skill development, personal development could be some parallel tasks that employees are seen pursuing when they opt for the part-time contract. A fixed-term contract has specified contract requirements which when completed leads to termination of the contract. The employees here have a predetermined salary or compensation that they receive. The number of hours is not specific here which makes it different from a part-time contract.
The fixed-term contract is mostly based on expertise and single projectthey can be extended in terms of time but never go beyond the task or the project undertaken.
Fixed-term employment ensures work surety and pay opportunities but lack in continuities. Employees when looking for such employment opportunities should always be aware that they will have to look for new contracts soon enough.