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Every construction project has its own set of circumstances that can involve timing, legal obligations, ownership configuration, cost limitations, financing objectives more. We offer a variety of contract types to suit our clients’ needs.
The following is a list of the various contractual arrangements available in order to assist in your decision-making process:
Guaranteed Maximum Price
A guaranteed maximum price (also known as GMP, not-to-exceed price, NTE, or NTX) contract is a cost-type contract (also known as an open-book contract) where the contractor is compensated for actual costs incurred plus a fixed fee subject to a ceiling price. The contractor is responsible for cost overruns, unless the GMP has been increased via formal change order (only as a result of additional scope from the client, not price overruns, errors, or omissions). Savings resulting from cost underruns are returned to the owner. This is different from a fixed-price contract (also known as stipulated price contract or lump-sum contract) where cost savings are typically retained by the contractor and essentially become additional profits.
A lump sum contract is normally used in the construction industry to reduce design and contract administration costs. It is called a lump sum because the contractor is required to submit a total and global price instead of bidding on individual items. A lump sum contract is the most recognized agreement form on simple and small projects and projects with a well-defined scope or construction projects where the risk of different site conditions is minimal.
Cost plus is a contract agreement wherein the purchaser agrees to pay the cost of the work, including all trade contractor work, labor, materials, and equipment, plus an amount for contractor overhead and profit. These types of contracts are favored where the scope of work is indeterminate or highly uncertain, and the kinds of labor, material, and equipment needed are also uncertain.
This kind of contract is based on estimated quantities of items included in the project and their unit prices.
The final price of the project is dependent on the quantities needed to carry out the work. In general, this contract is only suitable for construction and supplier projects where the different types of items, but not their numbers, can be accurately identified in the contract documents. It is not unusual to combine a Unit Price Contract for parts of the project with a Lump Sum Contract or other types of contracts.
A cost reimbursement contract is an alternative to a fixed price contract. Also called a cost plus contract, cost reimbursement contracts are used by governments, private individuals and businesses that are embarking on building or construction projects, on research projects or on other endeavors where a certain amount of materials will need to be purchased.
With cost-reimbursable alternative contracts, contractors are paid for the work with a mix of reimbursable and fixed or incentive costs. Cost-reimbursable alternative contracts are effective when the general scope of work and schedule are defined, but there is uncertainty in quantities or execution.
Integrated Project Delivery/Alliance
Integrated Project Delivery (IPD) contracts, or “Alliance” contracts, represent the latest trend towards a more collaborative approach to delivering construction projects. IPD contracts are unique in that they require the involvement of owners, designers, builders, and key stakeholders on a project as early as possible— sometimes even at the conceptual stage. This contract type results in more transparency among all the parties involved on a construction project. Additionally, both risk and reward are shared by the parties who enter into the IPD contract, resulting in greater integration of resources, processes, and expertise than would be possible under more traditional contract arrangements.