Key Takeaways

• Construction contracts define payment terms, allocate risk, and establish responsibilities to prevent disputes.
• Cost-plus contracts offer flexibility for uncertain scopes but require oversight to control escalating costs.
• Fixed-price contracts provide budget certainty when project details are clearly defined.
• Unit price and time-and-materials contracts promote fairness when quantities or scope may change.
• Design-build and guaranteed maximum price models balance efficiency, accountability, and cost control.

Niv Levy is a licensed general contractor and attorney whose work spans both construction and contract law. As President of Home Vision Remodel, he oversees project management, estimation, and quality control on residential and commercial projects, drawing on experience coordinating subcontractors, interpreting blueprints, and ensuring regulatory compliance. In parallel, he leads Levy Law Offices, a Beverly Hills based practice focused on contract drafting, review, and dispute resolution for a wide range of clients. His combined perspective allows him to evaluate construction contract structures not only for pricing and risk allocation, but also for how they perform in real disputes.

Levy’s long standing commitment to community service, including pro bono support for single mothers, veterans, and senior citizens, informs a practical approach that seeks clarity, fairness, and durability in the contract models that shape construction outcomes.

Common Contract Models in Construction Projects

Construction projects bring together owners, contractors, subcontractors, suppliers, and regulators in a highly interconnected process. With so many moving parts, even small miscommunications can lead to costly disputes or budget overruns. To prevent this, stakeholders use construction contracts that not only define payment terms but also assign responsibilities, outline dispute-resolution mechanisms, and allocate risks. Without such agreements, projects risk legal uncertainty and delays that threaten successful completion.

A cost-plus contract is a construction contract in which the project owner agrees to pay the contractor the cost of labor, equipment, materials, and an additional fee that is either a percentage of the costs or a fixed amount. This model is useful when project details are uncertain, as it allows flexibility to adapt as work progresses while ensuring contractors receive fair compensation. However, without spending caps or performance incentives, costs can escalate quickly, making oversight essential.

Fixed-price or lump sum contracts establish one lump sum price for the entire project. Construction stakeholders often adopt this contract type when the project scope is well-defined and unlikely to change. Here, the contractors agree to complete the work for the agreed-upon amount, regardless of any expenses they may incur in the future. Project owners often prefer this model because it ensures cost certainty, making it easier for them to plan their budget. Contractors can also benefit from this arrangement if they manage projects more efficiently and stay within budget.

In a unit price contract, the work is broken down into measurable units, such as square feet of drywall or cubic yards of concrete, and each unit has a set price. The total cost depends on the actual quantities used, making it particularly useful for projects where quantities may vary, such as road construction or utility installation. Owners can track expenses more easily, while contractors receive payment for the exact work completed rather than a lump sum. This approach ensures transparency and fairness when actual quantities differ from initial estimates.

Another common model is the time-and-materials contract, where contractors receive payment for the actual time spent on the job and the materials used. Labor is billed at an agreed hourly or daily rate, while materials are reimbursed at cost plus a markup. This arrangement works best when the scope is unclear at the beginning, such as during emergency repairs or small renovations. It allows owners to pay only for what is used, while contractors avoid the financial risks of underestimating project costs.

In a design-build contract, one entity manages both design and construction, creating a single point of accountability and enabling projects to progress more efficiently as work and planning occur simultaneously. This approach encourages collaboration and often leads to more innovative solutions. However, it gives owners less control over design details and may create conflicts if cost savings compromise quality, making choosing the right contractor especially important. Because of its efficiency and streamlined structure, design-build is becoming a popular choice for large projects that demand speed and strong coordination.

A guaranteed maximum price contract combines flexibility with cost control by setting a cap on total expenses. The contractor is reimbursed for costs plus a fee, but only up to the agreed maximum. If the final cost comes in lower, the savings are often shared, encouraging efficiency and goodwill between both parties. This structure provides owners with peace of mind while giving contractors an incentive to manage resources carefully.

Frequently Asked Questions

Why are construction contracts essential for project success?

They reduce legal uncertainty by clearly outlining responsibilities, payment structures, and dispute-resolution mechanisms.

When is a cost-plus contract most appropriate?

This model works best when project details are uncertain and flexibility is needed as work progresses.

What are the advantages of a fixed-price contract?

Fixed-price contracts offer cost certainty for owners and reward contractors who manage projects efficiently.

How do unit price contracts improve transparency?

They tie payments to measurable units of work, ensuring owners pay only for actual quantities completed.

What makes design-build contracts increasingly popular?

The single point of accountability and streamlined coordination often result in faster delivery and innovation.

About Niv Levy

Niv Levy is the President of Levy Law Offices and Home Vision Remodel, where he combines legal training with hands on construction leadership. He advises clients on contract drafting, review, and breach of contract issues while also directing project management, estimation, and quality oversight for remodeling work. Educated at Southwestern Law School and the University of California, Santa Barbara, he pairs technical knowledge with a strong record of pro bono service to single mothers, veterans, senior citizens, and the broader Jewish community.