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In a construction contract, clear price agreements are crucial to prevent conflicts. There are various types of contract sums — from a fixed price to cost-plus work — each with its own implications for the risk and certainty regarding the final costs.
The fixed contract price
With a fixed-price contract, the parties agree in advance on a single fixed amount for the entire work. The client knows exactly where they stand; the contractor bears the risk of setbacks, except for recognized additional work. This form offers the greatest certainty regarding the price but requires a clear description of the work.
The target price
A target price is an estimate of the costs, not a fixed amount. The final price may differ, but in principle, a target price may not be exceeded by more than a certain percentage without notifying the client in a timely manner. It offers flexibility, but less certainty than a fixed sum.
Working on an assignment basis
With cost-plus billing, settlement is made afterwards based on the actual hours spent and materials used, often at agreed rates (post-calculation). This is useful when the scope of the work is difficult to estimate in advance, but the final price is not fixed. Good record-keeping and transparency are essential in this regard.
Provisional sums and additional work
A contract sum may include provisional sums: estimated amounts for components that are not yet precisely known. In addition, additional work often occurs: extra work outside the original contract. Document how provisional sums are settled and how additional work is ordered and paid for to prevent disputes regarding the final invoice.
Frequently Asked Questions
What are the pricing structures for contracting work?
Including the fixed contract sum, the target price, and work on a time and materials basis (post-calculation), possibly with provisional sums.
Is it permissible to exceed a target price?
Limited: in principle not by more than a certain percentage without giving timely notice to the client.
How do I avoid a dispute about the final bill?
Clearly define the pricing structure, the settlement of provisional items, and the assignment and payment of additional work.
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Our legal experts draft your construction contract with clear pricing agreements. View our contract lawteam or schedule a free consultation.
