The San Francisco Bay Area sees its fair share of construction projects, whether it is roadwork, erecting a new building or renovating an existing building. The framework for these projects begins with architects and engineering firms, and many of these projects are based on AIA contracts. The following is an overview of three basic AIA construction contracts.
Construction contract one: Stipulated Sum Contracts
Stipulated sum contracts are the standard form of construction contracts between contractors and project owners. In this type of contract, the parties agree that the contractor will execute the job properly in return for a set price. If the costs incurred due to an increased price in labor and materials exceeds the estimated cost in the contract, the contractor’s profit will go down. If the actual costs of labor and materials is less than the estimated cost in the contract, the contractor’s profit will go up.
Construction contract two: Cost-Plus Contracts
If the scope of the project has yet to be finalized but both parties want construction to begin, they may agree to a cost-plus contract. In this type of contract, the project owner will pay costs associated with the project, plus a fee for overhead and profit. If the actual costs of the project wind up being lower than what was agreed upon in the cost-plus contract, the project owner keeps the savings. If the actual costs of the project wind up being higher than what was agreed upon, the project owner is responsible for paying the additional amount.
Construction contract three: Design-Build Contracts
If the project owner wants a single entity to take care of both the design and construction of a project, then a design-build contract may be right for them. In this type of contract, the contractor (usually someone who handles both design and building aspects of a project) is responsible for the entire project. The contractor will hire architects, engineers and subcontractors, among other entities, to get the job done.
Design professionals should take care before signing a contract
Design professionals, such as architects and engineers should take care before jumping into any contract. It is important that the contract is fair and does not expose the design professional to too much liability. Fortunately, help is available to those who want to learn more about construction contracts.
