“Of the many concerns an owner must navigate during the pre-construction process, one of the most critical issues to be resolved is how the construction contract will be priced,” Laura A. Colca writes in Modern Contractor Solutions.
In her article, Laura — a partner in the firm’s Construction Practice Group, with a background including corporate law and services, contract negotiations, high-value transactions, and complex litigation — explores the advantages and disadvantages of fixed-price arrangements for construction projects. A fixed-price contract — often required by law if a project is a public contract — “provides an owner with certainty as to the exact nature of the work the contractor is obligated to perform.” This apportions a greater amount of risk to the contractor, who agrees to perform the work “on time, and for a predetermined amount, regardless of whether costs and expenses such as labor or supplies rise.” Conversely, if an effective and efficient contractor can save money during the construction process, he or she will reap greater profit under a fixed-price contract. Other fixed-price factors Laura examines include the possibility of discord between owner and contractor, administrative oversight, and more.
“In considering the type of pricing mechanism to use on an upcoming construction project, due consideration should be given to the fixed-price arrangement,” Laura concludes. “If properly implemented, it can be an effective and efficient means to complete an on-time and on-budget project.”