How should construction contracts deal with payment?

Before any service is provided in return for payment, a contract should be put into place. Contracts are made for the benefit of all parties involved. The goal of a contract is to formalize all communication in a way that is clear and legally binding. This enables all parties to have a safety net to fall back on if the contract is breached.

One of the most important aspects of a contract is deciding how payments will be made. It can be risky for a client to commission a project and then pay the entire sum upfront before any work has been done. Similarly, it can be risky for contractors to complete work that they have not been paid for. Clearly agreeing on a payment plan can help to avoid disputes in the future. The following are common payment methods used in construction contracts.

Fixed price contract

In fixed-price contracts, the contractor will agree to complete a specific job for a fixed sum. This can be risky for the contractor because they may underestimate the work needed. Quality may also be compromised to get the job done quickly.

Time and materials contract

This method involves the client covering material costs while paying the contractor an hourly rate.

Cost-plus contract

Cost-plus contracts involve the client paying at cost for all of the work, plus a certain rate to account for profit. These contracts usually set a cap for maximum payment.

If you have become involved in a dispute regarding the payment of construction workers, you may need to engage in litigation to clear up the matter.