Your Guide To 5 Types Of Construction Contracts In Florida
The last couple of years have been a wild ride for Florida construction contractors, and the coming months show no signs of slowing down. Real estate professionals report that inventory remains below demand, so residential, commercial, and industrial projects will be ramping up. Florida gained 2.7 million residents according to the 2020 census, amplifying the housing shortage. Total construction market volume is expected to increase 7.6 percent during 2022, followed by another 4.2 percent spike for 2023.
Being busy is great for profits, but many contractors could be balancing numerous projects with widely varying requirements. You could be faced with different construction contracts, which might be confusing if you do not grasp how they operate. A Florida construction contracts attorney can explain the details regarding each of the five types, including:
- Time and Materials: As one of the most common types of construction contracts, a time and materials agreement is useful when certain aspects of the project are not well-defined. With this arrangement, contractors are paid for the actual materials supplied and the time involved with furnishing them. A time and materials agreement enables flexibility, but it is essential to lay out the details on what is to be supplied and hourly rates.
- Cost-Plus Agreements: With this contract, the owner pays a contractor for the costs incurred for labor, materials, and other services. On top of these expenses, the “plus” is an additional amount intended to serve as profit for the contractor. The downside to cost-plus contracts is that they are based upon reimbursement; the contractor carries the cost of materials for the duration of the project.
- Lump Sum Contracts: Most basic construction projects work according to this type of agreement, which carries a fixed price for all materials and labor furnished. The pros are that a lump sum contract simplifies bidding and encourages contractors to come in under budget. However, you could be at a disadvantage if miscalculations shrink margins, especially with large projects where the risk is higher.
- Unit Price Agreements: When the parties seek to divide the construction project into segments, they may use a unit price contract. With this approach, the contractor assigns price estimates to each phase. The advantage to the owner is transparency and getting a full view of the costs involved with each stage of the project. Still, the owner cannot predict the full value of the project, so the final cost might be higher than expected.
- Guaranteed Maximum Price (GMP): This form of construction contract sets a cap on the total project price, so the owner is not obligated for any amounts above the GMP. While these agreements can expedite the project, there can be significant risk for the contractor.
Discuss Options with a South Florida Construction Contracts Lawyer
Knowing the different types of agreements is useful, but there are many additional details that apply to individual construction projects. Working with an experienced attorney will keep you on track, so please contact Linkhorst & Hockin, P.A. to learn how we can help. You can call our Jupiter, FL offices at 561-626-8880 or visit us online to schedule a consultation.