In a contract, every person or party has its own roles and responsibilities and an agreement is written and signed. Many contracts are signed when there is an exchange of services, products and money. It is against the law to breach the contract since you can be taken to a court of law and the contract can be terminated. 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. If you can predict the cost of a project, a fixed-price contract is good for you. 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. You should consider the following before you settle on a fixed-price contract.
The fixed-price contract is for a contractor who knows what he/she will spend in the project and the profit he/she will get. The fixed-price contract is for well-defined projects. 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 phases of the fixed-price contract plan are well stated together with their deadlines.
The cons of the fixed-price contract are a longer plan development duration. Since the contract can lead to low profits and even losses, you need to prepare it carefully. You are not supposed to make fixed-price contract changes after the project has started. If you doubt if the course of the project will remain unaltered, you should avoid choosing a fixed-price contract.
The following are the advantages and disadvantages of time and material contract.
The higher the amount spent on materials and the longer the duration, the higher the amount the client will pay. The process of time and material contract planning is very simple. Many contractors in web design, marketing, and advertising and subscription prefer time and material contracts. Many clients also prefer this method since they can account for the materials used and time taken. The contractor is supposed to talk to the client after every phase of the time and material contract is complete.
The main advantage of the time and material contract is flexibility. If you want to avoid eating into your profit, you should pick time and material contract.
The other advantage of the time and material contract is that it is most preferred by clients. Clients love this method since they can account for what they have paid for.
If the management of time and materials in your contract is challenging, you should look for apps and software such as Rhumbix.