Australian Construction Contract Types: Understanding the Basics
Construction projects are complicated, and the legalities surrounding them are even more so. That`s why it`s important to have a good understanding of Australian construction contract types before undertaking any project. In this article, we`ll take a look at some of the most common contract types in Australia and what you need to know about them.
1. Lump Sum Contracts
A lump sum contract is also known as a fixed-price or stipulated-sum contract. This is when the contractor agrees to undertake the building work for a set price. This type of contract is often used for straightforward projects where the scope of the work is well-defined. However, it is important to note that the contractor bears the risk of any cost overruns.
2. Cost Plus Contracts
A cost-plus contract is when the client agrees to pay the contractor for all work done on the project plus an agreed-upon fee. This type of contract is often used in complex projects where the scope of work is not well-defined, and there is a higher degree of uncertainty. It is important to note that the risk for cost overruns is shifted to the client in this type of contract.
3. Guaranteed Maximum Price Contracts (GMP)
A guaranteed maximum price (GMP) contract is similar to a cost-plus contract, but with a cap on the total cost. The contractor agrees to complete the project within the given budget, and any cost overruns are borne by the contractor. This type of contract is often used in more complex projects where both parties want to limit risk.
4. Design and Construct Contracts
A design and construct contract is when the contractor is responsible for the design and construction of the project. This type of contract is often used in projects where the client has a general idea of what they want, but no specific design. It is important to note that the risk for design flaws is shifted to the contractor in this type of contract.
5. Managing Contractor Contracts
A managing contractor contract is when the main contractor manages the project and subcontracts specialised work to other contractors. This type of contract is often used in large projects where the main contractor needs to manage the work of several subcontractors. It is important to note that the risk for the work of the subcontractors is borne by the main contractor.
In conclusion, understanding Australian construction contract types is crucial before undertaking any construction project. It is important to carefully consider the nature of the project, the level of risk, and the objectives of both the client and the contractor before deciding on a contract type. By doing so, you can ensure that your construction project will be a successful one.