Types of Construction Contracts for Houses in India

Before constructing a house, one must need to understand the different types of construction contracts for house in India one might come across. In this blog, we will be discussing the various types of contracts and we will also tell you the pros and cons of each type of contract. This blog is a detailed explanation of different types of construction contracts. Please know these before you start your house construction. You will not only learn about the different types of contracts but also about when you should opt for that specific contract, what are their pros and cons and how to implement them.

The types of contrasts that have been discussed are:

Lump sum contracts

Cost-plus contracts

Design-Build Contract

Turnkey Contract

1.Lump sum contract

This is the contract where we say that we will get the keys of completed house from the contractor and contractor will quote us the price. Payment is decided before implementing this contract and then advance is deposited. Advance is normally more as compared to other contracts.

Pros and cons of this type of contract are that construction price remains fixed. If contractor makes lots of delays, penalties are applied. Contractor has opportunity to earn more as this is a high-risk return project. You have to stick with the contractor even if you are not getting quality from him or her. More advance goes to contactor which increases his or her bargaining power and negotiation power. Normally these contracts are front loaded by the contractors, so they tend not only to get higher advances in the beginning. More detailing is required.80% of the people who don’t have that knowledge about detailing, this type of contract is inappropriate for them.

The kind of people who should do Lump Sum Contract are the ones who focus more on detailing meaning they have all the drawings done, have BOQs with them and do have schedule of payment and schedule of work. They should also hire a consultant who checks that all the things are rightly done. Those who can understand that inflation is a factor in Pakistan and India, and they should incorporate it when deciding the contract. So, if you are making your first house, you should not do this type of contract.

2.Cost Plus contract

This is a hassle-free contract. The costs are borne by the client and the contractor is paid a fixed percentage on the scope of work and costs in this type of contract. Positives of this contract is that normally the work is done at the right pace and there is no haste in this type of projects. So, if you don’t find a bit lesser reliable vendor, still you will get the project delivered. The profit of contractor gets fixed Negatives of this contract is that no risk for the contractor. A dishonest contractor will make money in supplies as well and double his or her profits. Normally the costs of cost-plus contracts are higher, but quality is better. Even contractor’s mistakes will cost you. So, you get better quality of construction in cost plus contracts, but the costs are generally higher.

3.Time and Materials Contract:

This type of contract is similar to the cost plus contract, but the contractor is paid for the actual time and materials used in the construction process, rather than a percentage fee. This type of contract is often used when the scope of the work is uncertain, and it is difficult to estimate the final cost

4.Design-Build Contract

Under a Design-Build Contract, the contractor assumes responsibility for the entire project, including design, engineering, construction, and project management. This can lead to greater accountability and efficiency, as the contractor is incentivized to minimize costs and deliver the project on time and within budget. However, the owner may have less control over the design process and may need to rely on the expertise and experience of the contractor.

It is important to carefully consider the pros and cons of a Design-Build Contract before entering into this type of agreement. The owner should ensure that the contractor has the necessary qualifications and experience to successfully deliver the project, and that the contract includes clear provisions for scope of work, payment terms, and dispute resolution

5.Turnkey Contract

A Turnkey Contract is a type of construction contract in which the contractor takes full responsibility for the entire project, from design to construction, and hands over the finished project to the owner. The contractor is responsible for all aspects of the project, including design, procurement, construction, and commissioning. This type of contract can be beneficial for the owner as they do not need to be involved in the construction process and can focus on other aspects of the project.

Under a Turnkey Contract, the contractor is typically paid a fixed price for the completed project, and any changes or additional work outside the scope of the contract will result in additional costs for the owner. The contractor assumes the risk for any cost overruns or delays, and is incentivized to complete the project on time and within budget.

However, the owner may have less control over the project and may need to rely on the expertise and experience of the contractor. It is important to carefully consider the qualifications and reputation of the contractor before entering into a Turnkey Contract, and to ensure that the contract includes clear provisions for scope of work, payment terms, and dispute resolution.

Overall, a Turnkey Contract can be an effective way to transfer risk and responsibility to the contractor and ensure that the project is completed to the owner's satisfaction.

It is important to carefully consider the pros and cons of each type of contract before choosing the one that best suits your needs and budget. It is also recommended to seek professional advice from a lawyer or a construction expert to ensure that the contract is fair and legally binding.