{"id":2502,"date":"2022-03-06T20:18:54","date_gmt":"2022-03-06T20:18:54","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2502"},"modified":"2025-05-29T06:44:28","modified_gmt":"2025-05-29T05:44:28","slug":"five-key-contracts-for-a-construction-business","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/commercial-contracts\/five-key-contracts-for-a-construction-business\/","title":{"rendered":"Five Key Contracts for a Construction Business\u00a0"},"content":{"rendered":"<p><span style=\"font-weight: 400\">Construction contracts are a vital tool of the building trade. There are many different types of contracts utilised in the construction industry to help professionals secure more work. Depending on whether you are providing services or hiring a building contractor as a property owner, you will need to know your way around some of these key contracts. Therefore, this article will explain the key contracts you need for your construction business. While some can be quite complicated, this article will also explain what each contract is used for, and what obligations you will have from each contract.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">1. Lump Sum Contracts<\/span><\/h2>\n<p><span style=\"font-weight: 400\">A lump sum contract is one of the most common types of contractual agreements you will encounter in the construction industry. Also known as a fixed price agreement, a lump sum contract has <a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/unsigned-contract\/\">parties agree on a fixed price<\/a> to complete an entire project.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Having a fixed price is more beneficial to clients. This is because they will have more certainty about the final accounts for the works. Lump sum contracts can also convey some benefits that other contracts may not have. For example, a lump sum contract can include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">incentives for early completion; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">early termination clauses.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">Additionally, the bidding process is simpler with a lump sum contract. However, if contractors finish under budget, they will receive higher profit margins as their original price is fixed.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">However, lump sum contracts tend to give more risk to the contractor. The construction industry is very unpredictable, and prices for materials can fluctuate later. Contractors have fewer options to vary their service price under lump sum contracts, should the price of materials or labour change. Lump sum contracts also allow no margin for error. Therefore, if a contractor gets a measurement wrong, they will have to cover that material cost themselves.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">2. Time and Materials Contracts\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Time and materials contracts are better used when it is unclear how extensive the construction works will be. Typically, these contracts are best used for construction that needs to be completed quickly or for emergency work. For example, emergency contractors often fix fire or flood-damaged properties. They can then charge for the time it took them to repair the property and the materials they used.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Typically, contracting parties will agree on a price per hour or per day for the works. Additionally, the party who owns the property will also be required to pay for the materials involved in those works.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">One benefit for property owners is the ability to place a cap on the project\u2019s overall cost. They can also place a time limit on how long the work can go on. As with fixed-price contracts, you can insert clauses into contracts that allow contractors to receive a bonus if they finish ahead of time. These contracts are also great if you cannot fully estimate how much the works will cost or the time it will take to complete them. Otherwise, there may be uncertainty for the property owner about how much they will have to pay.\u00a0<\/span><\/p>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center text-left gform_input_bg_white    \">\n    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Cost-Plus Contracts\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Cost-plus contracts are another option for contractors who cannot accurately gauge how much a particular job will cost. This type of contract allows them to total up the bill for all of the materials and labour costs after they finish the building work. The property owner will then reimburse them for those costs, plus an additional fee for profit.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Typically, when construction companies submit tenders for a cost-plus contract, they will include an overhead figure for the amount the owner should expect to pay for labour and materials. Depending on the size of the job, a contractor\u2019s profit may be calculated in several ways. The most common are:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">cost of the contract plus a fixed percentage of that initial fee; or<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">cost of the contract plus a fixed fee.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">This means cost-plus contracts are very flexible. Therefore, if you encounter any problems throughout the construction process, cost-plus contracts are flexible enough to accommodate changes.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">4. Unit Pricing Contracts<\/span><\/h2>\n<p><span style=\"font-weight: 400\">For large construction projects, unit pricing contracts are more common as they allow the owner to split up the projects into smaller components.\u00a0<\/span><span style=\"font-weight: 400\">Also known as measurement contracts, these contracts require contractors to quote a price for each unit of work instead of giving a price for the entire contract.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">For example, a contractor may be carrying out work in a block of flats and may provide a quote for the completion of each apartment. In that scenario, the price for each unit can be changed depending on the level or type of building work needed in each apartment. But if the builder finds more work is required in one apartment, <a href=\"https:\/\/legalvision.co.uk\/disputes-litigation\/5-tips-getting-paid-on-time\/\">they can add an additional price<\/a> onto the next unit to cover that work. The problem for the property owner in unit contracts is that you cannot determine a definite sum for the work. This is because unit price contracts allow a lot of flexibility for parties to alter the overall sums of the contract.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">5. Guaranteed Maximum Price Contracts<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Guaranteed maximum price (GMP) contracts put a limit on the price of a contract. By doing this, building owners receive greater certainty over how much the work will cost.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Additionally, should the final contract sum exceed that cap, the owner will not pay for any labour or material costs causing the contract to spill over that cap. GMPs can be great contracts to use if you are looking to complete a contract quickly. However, they can place a great deal of risk on contractors if they go over the capped price on the contract.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Key Takeaways\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Construction contracts can come in a variety of different forms. Depending on the nature and size of the project, you may find <a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/questions-contracts-lawyer\/\">some contracts are less suited to your needs<\/a> as a contractor or property owner than others. The five main types of construction contracts you should be aware of are:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">lump sum contracts;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">time and money contracts;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">guaranteed maximum price contracts;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">unit pricing contracts; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">cost-plus profit contracts.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">If you need more advice on any type of <a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/introduction-construction-contracts\/\">construction contract<\/a>, our <a href=\"https:\/\/legalvision.co.uk\/contract-lawyers-lp\/\">experienced contract lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on [<\/span>number<span style=\"font-weight: 400\">] or<\/span> <span style=\"font-weight: 400\">visit our <a href=\"https:\/\/legalvision.co.uk\/membership\">membership page<\/a><\/span><span style=\"font-weight: 400\">.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1646597715327\"><strong class=\"schema-faq-question\">What is the most common construction contract?\u00a0<\/strong> <p class=\"schema-faq-answer\">Lump sum contracts, also known as fixed price contracts, are the most common contracts in the construction industry.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1646597746804\"><strong class=\"schema-faq-question\">Do construction contracts need to be in writing?<\/strong> <p class=\"schema-faq-answer\">You do not have to make a construction contract in writing. You can also make legally enforceable contracts verbally. However, verbal contracts typically provide less clarity and less security than written ones as their terms are not documented.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/2502\" \/>            <input value=\"https:\/\/legalvision.co.uk\/commercial-contracts\/five-key-contracts-for-a-construction-business\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Five Key Contracts for a Construction Business\u00a0\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Construction contracts are a vital tool of the building trade. There are many different types of contracts utilised in the construction industry to help professionals secure more work. Depending on whether you are providing services or hiring a building contractor as a property owner, you will need to know your way around some of these<a href=\"https:\/\/legalvision.co.uk\/commercial-contracts\/five-key-contracts-for-a-construction-business\/\">Continue reading <span class=\"sr-only\">&#8220;Five Key Contracts for a Construction Business\u00a0&#8220;<\/span><\/a><\/p>\n","protected":false},"author":13324,"featured_media":681,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"2344,882,2084,1347,2245,2299","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[37],"tags":[360,622,623,624,625],"class_list":["post-2502","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-contracts","tag-commercial-contract","tag-lump-sum","tag-cost-plus","tag-unit-pricing","tag-construction-contract"],"acf":[],"yoast_head":"<!-- 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Qualifications: Master of Laws (LLM), University of Liverpool; Law with Philosophy (LLB Hons), University of Liverpool; NCTJ Level 5 Diploma, Sports Journalism, Press Association.","sameAs":["https:\/\/www.linkedin.com\/in\/eddie-carruthers-4a72a2b2\/"],"url":"https:\/\/legalvision.co.uk\/author\/edwardcarruthers\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/commercial-contracts\/five-key-contracts-for-a-construction-business\/#faq-question-1646597715327","name":"What is the most common construction contract?\u00a0","acceptedAnswer":{"@type":"Answer","text":"Lump sum contracts, also known as fixed price contracts, are the most common contracts in the construction industry.\u00a0","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/commercial-contracts\/five-key-contracts-for-a-construction-business\/#faq-question-1646597746804","name":"Do construction contracts need to be in writing?","acceptedAnswer":{"@type":"Answer","text":"You do not have to make a construction contract in writing. You can also make legally enforceable contracts verbally. However, verbal contracts typically provide less clarity and less security than written ones as their terms are not documented.\u00a0","inLanguage":"en-GB"},"inLanguage":"en-GB"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/2502","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/users\/13324"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/comments?post=2502"}],"version-history":[{"count":6,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/2502\/revisions"}],"predecessor-version":[{"id":193775,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/2502\/revisions\/193775"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media\/681"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media?parent=2502"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/categories?post=2502"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/tags?post=2502"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}