There must be a mutual agreement between the two parties.
There must be an offer made by one party called the promisor.
The other party, called the promisee, must accept the offer.
There must be a consideration, which is usually payment in the form of money for doing an act or abstinence from doing a particular act by promisor for promisee.
The offer and acceptance should relate to something that is not prohibited by law.
The offer and acceptance constitute an agreement that, when enforceable by law, becomes a contract.
The contracting parties entering into the agreement should be competent, i.e., not disqualify
Fied by either infancy or insanity to make such an agreement.
Lump Sum Contract: A lump sum contract sets one determined price for all work done for the project. These construction contracts are also called “fixed price” or “stipulated sum” contracts.
Unit Price Contract: Unit price contracts typically emphasize the types of tasks being carried out in addition to the materials used on those tasks. This categorized style of pricing makes it easier for owners to evaluate each cost and allows builders to more accurately charge for each category.
Cost Plus Contract: Cost plus contracts normally require the owner to pay for all project expenses, like the cost of materials, labor and any other projects costs. Additionally, these types of contracts will also include an agreed-upon amount or percentage that covers the builder’s overhead costs and profit that the owner also pays.
Time and Materials Contract: Time and materials contracts define an hourly or daily rate for builders. In addition to paying this rate, owners also agree to pay any related project costs, which are noted in the contract as direct, indirect, markup and overhead costs.
What Are the Three Most Commonly Used Types of Construction Contracts?
Fixed Price: Fixed price construction contracts, also commonly referred to as “lump sum” or “stipulated sum” contracts, are the most common types of construction contracts. As its name suggests, under a fixed price contract a contractor agrees to construct a project for a “fixed” or agreed upon price.
Cost Plus: Under a cost plus construction contract, also known as a time and materials contract, a project owner agrees to pay a contractor for its costs plus a fee, which may either be a fixed fee or calculated as a percentage of costs.
Guaranteed Maximum Price: Under a guaranteed maximum price contract, project owners agree to pay contractors for their time and cost of materials plus a fee—but only up to a “guaranteed maximum price.”