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Fixed-price building contracts offer certain advantages

On Behalf of | Sep 25, 2022 | Business Law, Real Estate |

Builders, contractors and others in the construction industry don’t do any work without a signed contract. When determining costs, they may use a basic scale for hourly wages or bid on the job and provide a total. The latter format is known as a fixed-price contract. These agreements are quite common, but customers and building industry professionals should still consider the pros and cons of drafting or signing one.

Helps determine a budget

No one should feel comfortable going into a construction project with a blank check. In fact, many believe fixed-price contracts are best for keeping spending under control since they generally provide guidance and monetary reins over what a project or portion of it will cost. Moreover, lenders and mortgage companies also like the format because the established budget will initiate additional conversations about finances if there are cost overruns. As with most valid business contracts, contingencies and clauses protect each side. Unexpected expenses often arise, and these clauses help determine who and how additional expenses are covered.

There are still risks

Agreeing to a price before ever beginning involves a certain amount of risk, which is tempered by experience in knowing what it takes to meet the agreement’s terms. But if the bidder miscalculates the amount of work and time involved, the costs can eat into the bottom line or profits.

What about those contingencies?

A contingency can provide cover to the contractor or builder, giving them the chance to make a competitive bid with some caveats attached. This can be good for the customer, but it may also enable someone to make an unrealistically low bid, knowing that they can invoke specific clauses to increase costs or ensure that foreseeable overruns do not impact their profit margins.

Draft the right contract for the job

Considering how much money is involved in the average building project, contracts have a significant role in these business agreements. Whether a fixed-rate deal or another format, working with attorneys with experience drafting and enforcing construction industry contracts often makes sense. They can also help structure the financing and take care of necessary paperwork.

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