Role of Contracts in Construction Projects

5 mins read
Construction Projects
Construction Projects

The construction project owner and a general contractor sign on a legal document containing project details is called a construction project contract. The owners want someone to outsource the job so the contractor executes the whole construction process. By signing the construction contracts, both parties agree to the terms and conditions regarding the project completion and payment matters. A construction project is highly important before starting a project. Therefore, construction estimating servicescan play a vital role in understanding the whole construction project estimates before signing the contract.

These contracts have all the information about communication channels, materials, labor, costs, and timelines. Construction contracts are necessary to streamline the decision-making process. In short, we can say that a construction contract is like a roadmap for a construction project.

Definition of Construction Contract?

Each construction project needs legal documentation before its execution. A project contractor executes the project after signing a legal contract with the project owner. By signing this document, the contractor and the owner agreed on the same terms and conditions.

Every construction project is different depending upon various conditions and locations. So, there are various types of construction contracts:

  • Lump Sum Contracts
  • Cost-Plus Contracts
  • Time-Material Contracts
  • Unit Pricing Contracts

Ingredients of a Construction Project

As we know a construction project is not the same for all kinds of constructions. There are always huge differences depending on the size of the project, location of the project, budget of the project, and scope of the project. But still, there are some necessary components or ingredients of a construction project. These are:

  • Total Value of Project
  • Rentainage of Project
  • Scope of Construction Project

Total Contract Sum

All construction projects must have a collective sum of the whole project. Which is the total amount that a project owner pays to the general contractor. A general contractor will be responsible for the completion of the project within this contract sum.

Rentainage of Project

Retainage is another term associated with the project costs. But this involves the percentage of the project amount that a project owner will keep with him until the general contractor completes the projects according to the owner’s demands.

Scope of the Project

Every construction project is different in terms of scope. A project’s scope is mentioned in the project contract. Which clarifies any kind of ambiguities regarding the project timelines and project scope.

Important Project Details

There are a lot of other important project details that should be included in the project’s contracts. These are:

  • Construction Drawings
  • Warranty
  • Terms and Conditions
  • Regulatory Compliance
  • Work Specifications
  • Project Timelines
  • Details about management changes
  • Payment Details
  • COntractor’s and owner’s responsibilities

Types of Construction Contracts

Each construction project is different form the other in terms of size and scope. In the same way, there is a different contract for different kinds of construction projects.

Lump-Sum Contracts

This type of contract includes all the project costs that a contractor and an owner agree upon. It includes all kinds of materials and equipment that the whole project requires.

Time-Material Contracts

These contracts are used in those scenarios where there is no idea of project scope and completion. In this contract, the contractor gets his fee on an hourly basis and according to the material used. In this type of project, the contractor needs construction takeoff services to analyze better the rates and quantity use of the materials per hour.

Cost-plus Contracts

This is a pre-estimation cost that a project owner gives to a general contractor before the project starts. This cost is given in cases when the project scope is undetermined.


Construction contracts are simply to eliminate the project complications between the contractor and the owner. These documents are necessary for saving time and effective management of all the project areas. Similarly, the project cost is another big factor. Construction cost estimating servicescan play an important role in the effective role in the cost management of the project.

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