Residential Construction Contract Types

19 Jan Residential Construction Contract Types

Residential construction involves numerous moving pieces and variables. The contract type is a crucial factor in the cost, schedule, and management of the project.

When seeking estimates and interviewing contractors, be sure to discuss various options for the contract structure. Do you prefer fixed costs or flexibility? Do you anticipate changes during construction, and how do you want those to be handled?

Ideally, your residential construction contract should be easy to understand, with clear provisions to handle every important aspect (such as time overruns, unexpected costs, or preferred materials being unavailable).

Let’s discuss the most common types of residential construction contracts in California.

Fixed Price

Fixed price contracts set forth an agreed upon total amount; these are also called lump sum contracts. This contract type works well when the project has few uncertainties.

As the homeowner, you will want to make sure a fixed price contract stipulates any non-negotiable items, materials, and labor techniques you want used. If changes must be made, you will need to formally agree to a change order, with additional fees agreed upon separately.

Cost Plus

This is a very common contract in residential construction because it provides more flexibility and leeway for both the owner and the contractor. Cost plus means the project will be paid based on the cost of the materials and labor, plus a percentage or fixed fee.

Cost plus contracts make it easier for you to make substitutions or changes during the project. You can adjust your projected costs based on the price structure of the contract, and the contractor can take necessary actions without the need to rewrite the contract repeatedly.

Given that cost plus contracts leave the total price more up-in-the-air, make sure to discuss your project in detail and what provisions may be added to the contract to control the cost and schedule.

Guaranteed Maximum

Guaranteed maximum price contracts are a blend of fixed price and cost plus. These work very well for residential construction, offering flexibility with the comfort of a known maximum price.

The actual cost consists of the time and materials, like a cost plus contract. The guaranteed cap establishes a limit to the contractor’s fees. You can work with your contractor to establish how to handle any savings, should the project come in lower than the max.

Other Specific Types of Residential Construction Contracts

Above we discussed the primary types of cost structures for residential construction contracts. The actual contract can be customized around one of several project types:

• Design-build: The lead contractor acts as a single point-of-contact, coordinating with architects and subcontractors to develop and manage the project from conception to finish.
• Construction management: More applicable to renovations than new residential construction, a management contract defines the role of a contractor who will oversee a project (i.e., as opposed to the homeowner personally managing the work of multiple subcontractors).

Our pre-construction team can help you navigate the process of establishing a schedule and cost projection for your new home or renovation. Contact McNeil Construction today to discuss your ideas and goals for a beautiful home, built sustain-ably and responsibly.