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Different Types of Construction Contracts: Which is Right for Me?

You know you need to hire a contractor to build your project, but how do you know which is the right type of agreement to have with them? Before you choose, it’s important to understand and define critical items such as project timeline (how soon does it need to be done), preconstruction needs (how construction-ready is the project), how much design phase interaction is needed (how involved/knowledgeable is the design team), and how much detail you want to provide input on (specific scope or product requirements versus only a design-led vision)?

Well-defined answers to questions like those above will help you determine if you need a Construction Manager as Agent (CMa), Construction Manager as Constructor/Construction Manager At Risk (CMc or CMr), or a General Contractor (GC). In many instances, the same firm has the ability to provide all of these services. Determining the correct delivery model depends upon several factors such as risk tolerance, established cost upfront, or how much assistance you might need during the design or preconstruction phase. In the following scenarios, two different types of contracts are referenced as examples. The first is through the American Institute of Architects (AIA), Standard Forms of Agreements, and the second is through Associated General Contractors of America (AGC), ConsensusDocs. There are other industry-standard contract options, and many Contractors have in-house agreements that they’ve developed over the years.

For projects requiring preconstruction services (assistance navigating the design process, constructability review, budget, and/or assistance), an Owner would likely engage a CMc or GC utilizing an agreement that includes a fee for these preconstruction services. Once the drawings are further defined, costs of construction and associated fees for the Contractor can be defined either with or without Guaranteed Maximum Price (GMP). Examples of this are AIA Standard Forms of Agreement A134 and A133, and ConsensusDocs 500 and 510, respectively.

If preconstruction services are not required, an Owner might consider hiring a GC after receiving well-defined construction documents using a lump sum or stipulated sum, agreement such as AIA A101 or ConsensusDocs 200. If the scope is perhaps not completely defined, but close enough that the design can be finalized as the project moves along, the Owner might consider an agreement where the GC is paid for the cost of the work plus a fee, with (or without) a GMP. An example of this type of agreement is AIA A102 or ConsensusDocs 230.

In the above options, the GC or CMc assumes the risk on the project for performance, cost, and schedule. Depending upon whether it is a lump sum or a GMP agreement, your risk as an Owner is also limited, but only to the extent the project scope and drawings are well-defined (IE. you don’t expect there to be any changes). In a lump-sum scenario, the Contractor bears the risk of cost overruns, but also the upside of any cost savings. In a GMP scenario, project cost savings are usually returned to the Owner, either entirely or as some split between Contractor and Owner.

Alternatively, if an Owner is willing to assume the risk for cost and schedule they might consider hiring a CMa. The CMa acts in an advisory capacity during design and construction, based upon an established fixed fee. Since the Owner assumes the risk, any project cost savings are fully realized by the Owner. Examples of these contract types are AIA A132 or ConsensusDocs 830 or 831

None of the above options consider alternative delivery models wherein the Contractor is also responsible for the design, or where the Contractor, Owner, and Design team all share the risks of the project equally. This first model is called Design-Build, and the GC would have a direct contract with the design team as opposed to the Owner contracting with those entities. The latter is called Integrated Project Delivery. More information about these, and other, delivery models are discussed in a separate document entitled “What Delivery Model is Best For Your Construction or Design Project?”

Ultimately, fully understanding the project goals, owner involvement, and desired outcomes will guide an Owner in making informed decisions and ultimately selecting the proper construction contracting agreement.


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