SELECTION OF CONSTRUCTION CONTRACT FOR RESIDENTIAL HOUSE CONSTRUCTION
The selection of a type of Construction Contract
Having completed the architectural plan and design of the house, the next step would be to begin construction.
For Construction of an individual house, one has to hire the services of a professional/s (contractor/s) who turns the design and drawings into physical existence.
A most important decision that has to be executed while constructing a house is, to decide on the type of ‘construction contract’ that has to be selected for.
Common types of construction contracts that are used and their Benefits and Drawbacks are:
Item rate contract:
Work to be executed as per specifications and drawings
Accountability for the quality of workmanship and materials is that of a contractor
Possibility of hiring reputed and established contractors is highSupply material and labor in the contractor’s scope
The contractor will have a mark-up of materials
The basic price of the expensive materials such as cement and reinforcement steel shall be specified and any variations during the contract shall be repaid. Also advisable to fix the basic cost of finishing materials.
2. Material supply contract OR Labor contract:
Reduces profit margin marked upon the materials
The client must have the time, infrastructure and patience to procure all the materials
Limited control over wastage of materials
3. Cost per sft of construction:
Contractual relationship with only one firm ( contractor ) or person
Contractors responsibility forces him to give a good result
The contractor has a fixed price
Eliminate extra expenses
The price may be high in some conditions.
This type of contract is commonly used for construction projects ranging from single buildings to large-scale developments. Under a traditional lump-sum contract, the owner agrees to pay the contractor to complete a project that is built to the owner's requirements and specifications. While the owner is, at all times, given several opportunities to make decisions throughout the project, as well as to make changes as needed, however, in such arrangements, the Owner is in much lesser responsibility of the project as the contractor handles all problems related to the construction of the project.
Hence the most common type of ‘contract’ that is adopted by most of the house owners is the cost/sqft’ contract.