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The Pros and Cons of Fixed-Price Contracts and Time and Material Contracts

An agreement which is legal and used in binding people or parties with various rights and responsibilities together is known as a contract. Contracts involve the exchange of goods, services, and money. A party which breaches the contract can be sued or the contract canceled. In this article we shall focus on construction contracts. The main types of contracts in construction are fixed-price contract and time and material contract. If you can predict the cost of a project, a fixed-price contract is good for you. It is good to pick a contract method with utmost care to avoid eating into your profits. The following are advantages and disadvantages of Fixed-price contracts.

The fixed-price contract is for a contractor who knows what he/she will spend in the project and the profit he/she will get. A project with a clear process is suitable for a fixed-price contract. You need to eat into your profit if the process changes its course and you incur more. When coming up with the fixed-price contract plan, you should have a pricing allowance.

The main advantage of a fixed-price contract is a price assurance but only if the project does not get out of scope. The fixed-price contract process is also easier since it is well-defined and has phases together with respective deadlines.

The disadvantage of the fixed-price contract is the longer preparation duration. By coming up with the fixed-price contract plan carefully, you will be assured of an intact profit. Once the fixed-price contract project has started, changes cannot be accommodated. The fixed-price contracts are not for projects which change as they go one.

Below are pros and cons of time and material contracts.

The higher the amount spent on materials and the longer the duration, the higher the amount the client will pay. The planning of the time and material contract does not need a lot of time since there are no strict scopes and deadlines. Some of the projects which are favorable for time and material contract are software development, advertising, construction, and other subscription services. A lot of clients prefer time and material contract to fixed-price contracts. The time and material contract plan is broken into faces and the client is consulted after every phase.

The main pro of time and material contract is elasticity. Once you settle on time and material contract, you will have an untouched profit.

Once you settle on time and material contract, you will find more clients. Clients love this method since they can account for what they have paid for.

Finally, if you are struggling managing time for your time and material contract, you need construction management apps such as Rhumbix.

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