An agreement which is legal and used in binding people or parties with various rights and responsibilities together is known as a contract. Contracts involve the exchange of goods, services, and money. A party which breaches the contract can be sued or the contract canceled. We shall discuss contraction contracts. The main 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. Many contractors have made losses by choosing their contract types unwisely. The following are advantages and disadvantages of Fixed-price contracts.
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. A project with a clear process is suitable for a fixed-price contract. If the course of the project changes, you should not inform the client but you should raise the added expenses from your income. 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 plan has clear phases and deadlines.
The disadvantage of the fixed-price contract is the longer preparation duration. To avoid eating into your project profit, you should have a good fixed-price contract project plan. Once the fixed-price contract project has started, changes cannot be accommodated. You should not pick fixed-price contract for projects which can change during course.
The following are the advantages and disadvantages of time and material contract.
In the time and material contract, the client pays the contractor on the basis of materials used and time which is taken The planning of the time and material contract does not need a lot of time since there are no strict scopes and deadlines. Some of the projects which are favorable for time and material contract are software development, advertising, construction, and other subscription services. Many clients also prefer this method since they can account for the materials used and time taken. The time and material contract plan is broken into faces and the client is consulted after every phase.
The time and material contract is more flexible. 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.
Lastly, time and material management applications such as Rhumbix will be of great importance to you.