An agreement which is legal and used in binding people or parties with various rights and responsibilities together is known as a contract. In the contract, the individuals or parties mainly exchange specific services or products for money. A party which breaches the contract can be sued or the contract canceled. In this article we shall focus on construction contracts. The two types of contracts in construction are fixed-price contract and time and material contract. Fixed-price contracts are favorable for projects which have predictable costs. A business should choose its contract type wisely to avoid losing clients because of higher prices and losing profit as a result predicting lower costs. The following are advantages and disadvantages of Fixed-price contracts.
Before you settle on a fixed-price contract method, please make sure you have determined the expected expenditure and profit. A project with a clear process is suitable for a fixed-price contract. You need to eat into your profit if the process changes its course and you incur more. If you choose the fixed-price contract, please have a pricing buffer to make sure that your profit is intact.
The greatest pro of the fixed-price contract is an assurance of price. The fixed-price contract process is also easier since it is well-defined and has phases together with respective deadlines.
The disadvantage of the fixed-price contract is the longer preparation duration. By coming up with the fixed-price contract plan carefully, you will be assured of an intact profit. You are not supposed to make fixed-price contract changes after the project has started. The fixed-price contracts are not for projects which change as they go one.
Below are pros and cons of time and material contracts.
In time and material contract, the client pays for the materials, labor and time incurred. The planning of the time and material contract does not need a lot of time since there are no strict scopes and deadlines. Many contractors in web design, marketing, and advertising and subscription prefer time and material contracts. A lot of clients prefer time and material contract to fixed-price contracts. The time and material contract plan is broken into faces and the client is consulted after every phase.
The main pro of time and material contract is elasticity. Once you settle on time and material contract, you will have an untouched profit.
The other pro of time and material contract is a preference by clients. As a client in time and material contract, you can will see the materials which have been purchased and the time which the project has taken.
If the management of time and materials in your contract is challenging, you should look for apps and software such as Rhumbix.