A contract is an arrangement between two individual or groups which is governed by some rules. In the contract, the individuals or parties mainly exchange specific services or products for money. It is against the law to breach the contract since you can be taken to a court of law and the contract can be terminated. In this article we shall focus on construction contracts. In construction, you should either time and materials contract and fixed-price contract. Fixed-price contracts are favorable for projects which have predictable costs. Many contractors have made losses by choosing their contract types unwisely. Below are the pros and cons of fixed-price contracts.
The fixed-price contract is for a contractor who knows what he/she will spend in the project and the profit he/she will get. A project whose process is well-defined is suitable for the fixed-price contract. If the course of the project changes, you should not inform the client but you should raise the added expenses from your income. It is wise to have a buffer for the pricing when coming up with the fixed-price contract plan.
The main advantage of a fixed-price contract is a price assurance but only if the project does not get out of scope. The phases of the fixed-price contract plan are well stated together with their deadlines.
You need to take the utmost care when coming with the fixed-price contract plan. To avoid eating into your project profit, you should have a good fixed-price contract project plan. You should know that fixed-price contracts cannot be corrected or flexed once the project has started. If you doubt if the course of the project will remain unaltered, you should avoid choosing a fixed-price contract.
You should consider the following factors before you settle on time and material contract.
In time and material contract, the client pays for the materials, labor and time incurred. Since the time and material contract plan has no deadlines which are rigid, it is simple to develop. Some of the projects which are favorable for time and material contract are software development, advertising, construction, and other subscription services. Many clients also prefer this method since they can account for the materials used and time taken. It is good to break the time and material contract into phases and talk with the client after the end of each phase.
The time and material contract is more flexible. The contract will enable your profit to remain untouched since you will compensate for changes in material prices and time taken.
Once you settle on time and material contract, you will find more clients. Clients love this method since they can account for what they have paid for.
Finally, if you are struggling managing time for your time and material contract, you need construction management apps such as Rhumbix.