What are the benefits of a fixed-rate building contract?

On Behalf of | Aug 30, 2022 | Firm News |

Builders use different kinds of contracts. For example, some contracts will charge by the hour, while others quote a price in advance. The latter format is called a fixed-price contract. These agreements are quite common, but signers should assess the pros and cons before signing one.

It establishes a budget

A fixed-price contract is generally beneficial to the buyer because it establishes a predictable cost for a project. Lenders also like these arrangements because the established number creates a budget for the client or buyer, which means that any changes (namely cost increases) will be reviewed and noted. As with all business contracts, there will be clauses and contingencies for price increases. However, many believe invoking them can lead to disputes and complications, which the builder or seller may be more inclined to avoid.

But there are risks

Putting a price on something before it is finished can be risky, particularly if miscalculations severely impact profit margins. Unforeseen delays or issues not covered by contingency means one or both sides must adjust accordingly.

Be mindful of contingency fees and clauses

Contracts need to address all foreseen issues and causes for delays. Still, buyers should read them carefully — the builder may agree to a number they know to be unrealistic, figuring that they can land the deal first and then increase its price tag using fees and clauses, knowing the increased cost does not come out of their bottom line.

Negotiating and enforcing the right contract

Considering the cost of the average building project, it is essential to have a useful and binding agreement. Whether it is a fixed rate or hourly format, it is wise to work with an attorney who handles building contracts and litigation to draft and enforce the agreement. They understand the nature of the building projects and the risks involved and can prepare a fair and binding contract. They also can negotiate creative solutions for areas of dispute or file a lawsuit if litigation is necessary.