Understanding Contract Models for your Project Needs
When it comes to executing a contract, it is important to consider the contract type that’s most suited for your project needs and goals, fair to the parties involved, and in line with your business model. There are two main types of contracting models to consider that support different project environments and approaches.
TIME AND MATERIALS
Time and Materials contracts are often used on projects where it’s nearly impossible to accurately predict the total project cost, when the schedule can’t be defined, or when changes are likely to be made during design and/or construction. In this model, firms are paid based on two factors: 1) cost of labor (typically a specified hourly rate), 2) cost of materials and equipment
Time and Materials contracts offer a lot of flexibility. Because this contract is in effect until the work is complete, it can accommodate a change in scope and services and grows as time and/or material is added to the project. Again, with a Time and Materials contract, all parties need to understand how schedule and scope changes can affect the budget.
Unlike Time and Materials contracts, a Fixed Fee contract does not depend on the resources or the time spent to complete the project, but rather on setting a fixed price for the service/project at the projects onset. With this model, the firm develops a fixed fee based upon its estimation of the required labor and materials to complete the project and invoices on the percent of the project completed at the time of invoicing. A fixed fee is ideal for projects with a well-defined scope and schedule, and/or where the risk of modifications to either is minimal and there is little uncertainty.
With a Fixed Fee contract, so long as the scope or schedule is not modified by the owner or client, the firm bears the risk that the fee is accurate, and the owner or client isn’t charged more. With a Fixed Fee contract, it’s important the project is designed and approved by the owner/client completely before any construction begins in order to minimize changes.
Again, when it comes to executing a contract, it’s important to consider the goals and expectations of your business and the nature of your projects. Because WLC views each project and client relationship as unique, we have experience working within each contract model above. We believe strongly in creating a long-term partnership with our clients based on communication, honesty, and fairness, and are willing to work within their contract preferences. To learn more about our project management process and experience, contact us today!