Types Of Multi-Family Construction Contracts Explained

Types Of Multi-Family Construction Contracts Explained

Choosing the right multi-family construction contract is not an easy task, but it’s one of the most important decisions you’ll ever make if you’re interested in renovating or developing multi-family housing. Regardless of whether you’re interested in investing in a development project or you’re a developer yourself, understanding the different types of construction contracts and how to select a suitable one is a key to success.

What is a Multi-Family Construction?

Multi-family construction is complex because of its risks of capital and schedule constraints. To achieve successful development, many constructions and design details need to be considered. Not to mention the site selection process, efficiency, code requirements, and structural systems as elements to be explored during the earlier stages of a project. This ensures the development of the most cost-effective and functional facility. You’ll want to ensure the very best construction decisions and design are implemented, which is why finding a contractor partner that is actively engaged and experienced at the start of the project is crucial.

What is Included in a Multi-Family Construction Contract?

A standard construction contract is an agreement made among several parties involved in a project. This includes a contractor and property owner that outlines the scope of the project and payment expectations and protects both parties from fall-backs or sudden breaches while construction is being carried out. A multi-family construction contract should include the following items:

Description of Project: A basic explanation of the issues that need to be resolved during the project, including the project summary and purpose (such as remodeling for outdated sites, structure fortification due to damage)

Price of the Contract: The total projected price of the project, and any other payments and deductions due to unforeseen conditions.

Schedule of payment: An outline of payment terms and due dates, penalties for late payment and invoicing procedures.

Project documents list: A list of project documents, including specs, blueprints, exhibits, and other documents that are crucial to the project.

Responsibilities of contractor and property owner: An description of the responsibilities of each role, such as who should provide relevant information and documents, and specify the terms in claims, disputes and liens.

Different Types of Multi-Family Construction Contracts

When selecting a multi-family construction contract to meet your needs, the first step is always to conduct thorough research. There are several kinds of contracts designed for different projects. We list some of them here for your consideration:

  • Time and Materials Contract

One of the most flexible contracts, a time and materials contract is based on the estimated time that a contractor will spend on the project and the projected materials cost. Construction jobs are known to have delays in the project timeline and variations in the amount of material used. A time and materials contract can be altered to suit the final project sum so that the contractor can receive proper payment.

  • Lump-Sum Contract

Lump-sum contracts are like a blanket-type contract. Lump-sum contracts cover the whole project, including subcontractors’ jobs, and are calculated by approximating each piece of a job with estimating practices and tools. This type of contract is suitable for projects that can be defined easily in terms of scope and are unlikely to have variations during the project.

  • Fixed-Price Contract

Fixed-price contracts are similar to lump-sum contracts, as they consist of a single sum that spans the entire scope of the project. However, a fixed-price contract can be risky for property owners or contractors. Let’s say the contractor drafts a fixed-price contract based on previous projects and the correct estimating tools, but there is a substantial change in the sum later on, then either the contractor will receive less or the property owner will have to pay more. As they are bound by the contract, the final sum cannot be changed.

  • Cost-Plus Contract

The opposite of fixed contracts, cost-plus contracts compensate the contractor with the materials and labor costs, plus an added profit. This additional profit is based on a percentage agreed upon by the property owner and the contractor beforehand. To receive proper reimbursement, the contractor must present to the property owner documented proof of all expenditures. For this type of contract to work in their favor, the contractor must be very organized in their bookkeeping.

  • Unit-Price Contract

Unit-price contracts are suitable for projects where the jobs can be calculated and priced easily – be it time or amount – within a stipulated time frame. Each unit price can include materials, labor, contractor’s profit, and equipment cost. This type of contract is ideal for subset projects of a large project, smaller construction jobs, or jobs that can be measured easily – such as distance or square footage.