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Construction Law

Guaranteed Maximum Price Construction Contracts

Guaranteed Maximum Price Construction Contracts

This article explains the basics of “Guaranteed Maximum Price” construction contracts, including an explanation of contingencies and allowances, two common components of these types of contracts.  For a broader discussion on general contractor agreements, check out our article: General Contractor Agreements Explained.  ​

In that article, we describe different types of pricing structures that can be used in general contractor agreements.  One of the most common price structures is for the owner to pay the contractor the cost of work plus the contractor’s fee. ​

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General Contractor Agreements Explained

General Contractor Agreements Explained

General contractor agreements for construction projects contain many provisions that are subject to negotiation between the owner and the general contractor based on the specifics of the project and the relative negotiating power of each party. The purpose of this article is to explain the most important clauses in general contractor agreements for construction projects.  We will explain the purpose of each clause as well as negotiation considerations between the owner and the general contractor.   ​

Scope of Work

The “scope of work” clause lays out the work that the contractor is responsible for delivering in exchange for payment.  The most important consideration in a scope of work clause is minimizing ambiguity in order to avoid future litigation.  The primary issue in negotiations between the contractor and the owner is determining to what extent the contractor will be responsible for work that can be reasonably inferred from the architect’s plans.  Usually, this issue is resolved by defining reasonably “inferable work” as all work reasonably expected by other contractors exercising care, skill and diligence in the geographical area in which the work is to be performed.

Contract Price

There are several common methods used to establish a contract price:

  • Lump Sum: A flat fee that does not take into consideration the actual cost of the work.  This provides certainty to the owner and an opportunity for additional profit to the contractor, in return for the contractor taking on additional risk if costs exceed expectations.   
  • Unit pricing: The parties agree to flat fees for various components of the work.  
  • Cost of Work Plus Contractor’s Fee:  The price takes into account the actual cost of work plus a fee for the contractor’s labor, which can either be a flat fee or a percentage of the cost of work.  In Cost of WOrk Plus Contractor’s Fee contracts, the parties may agree to a cap on the total contract price and a bonus for the contractor if the price is below this cap.  
  • Time and Materials: The price equals the actual cost of materials plus an hourly rate for labor.  ​
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Illinois Home Repair Fraud

Illinois Home Repair Fraud

When you hire a contractor to repair or remodel your home, the contractor is required by Illinois law to provide you with a consumer rights brochure.  The purpose of the brochure is both to inform you of your rights as a homeowner and provide you with tips to avoid being scammed.

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