Construction Contract

A contract is any promise or set of promises made by one party to another for the breach of which the law provides a remedy. The promise or promises may be express (either written or oral) or may be implied from circumstances. 

Typically, the remedy for breach of contract is an award of money damages intended to restore the injured party to the economic position that he or she expected from performance of the promise or promises.

Construction Contract: It is an agreement between the owner of a proposed home and the building contractor, stating the rights and responsibilities of each. Construction loans require a good deal more paperwork than any other type of mortgage loan and a construction contract is a very important document that underwriters want to see.
There is no standard form and the format of the contract, it can vary, but certain elements must be present regardless of the format, and those elements must be acceptable to underwriting.

Types of Construction Contract: Construction contracts serve as a means of pricing construction, they also structure the allocation of risk to the various parties involved. The owner has the sole power to decide what type of contract should be used for a specific facility to be constructed and to set forth the terms in a contractual agreement. Different types of construction contracts are as follows: 

• Lump Sum Contract
• Unit Price Contract
• Cost Plus Fixed Percentage Contract
• Cost Plus Fixed Fee Contract
• Cost Plus Variable Percentage Contract
• Target Estimate Contract
• Guaranteed Maximum Cost Contract

A good contract should contain:

• The contractors registration number.
• A clear statement of the responsibilities each party will perform.
• A statement of work quality such as Standard Practices of the Trades or according to Manufacturers Specifications.
• A construction timetable including starting and completion dates (The date of the contract, the scheduled dates for commencement and completion of construction and the date of occupancy.)
• The amount the builder is to receive for construction of the completed home, as well as under what conditions it will be received.
• If the property is located in a state that charges sales tax, the contract must specify whether the amount includes state sales tax.
• A set of Blue Prints or Plans.
• Line item cost breakdown.
• A Payment Schedule that is compatible with the line item cost breakdown and the disbursement procedures of the investor.
• A set of specifications & any allowances.
• Provisions for possible changes to plans or specifications by appropriate change orders.
• A Fixed Price for the work , or a Time and Materials formula. 
• Full identification of all parties and definition of all names used in the contract (contractor, owner, subcontractors and architect).
• A written Warrantee.
• Architect's responsibility, if any.
• A clause which outlines how any disputes will be resolved. 
• Signatures of the borrower and contractor.
• The property's numerical street address or full legal description.
• You must review all legal documents with your attorney.

Construction contract is a very important document, so you must follow the above guidelines.

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