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I want to build a residential dwelling. What types of contracts can I execute with the building contractor?
There are two types of contracts:
- Lump-Sum Price Contract: This is a contract by which someone (designated the businessman/employer or contractor) agrees to be legally bound thereby to execute the construction of a building project for someone else, and the latter, in turn agrees to be legally bound thereby to pay a set price for the construction of that project. The purpose of this contract is the construction and completion of the project, and as a general rule, the agreed upon price as set by the parties cannot be changed, other than the exception legally established and recorded in the enforceable voluntary agreement. In said agreements, the project price shall be payable upon delivery thereof, except as otherwise agreed.
- Unit Price Construction Contract: This is a contract that stipulates an estimate-based payment for work performed in specific or stated periods, such that payment is made upon proof of completion of work for each period. The price for the entire project is established on a lump-sum basis, but is partially payable as the project is completed during specific periods within a deadline, allowing for payment installments as the project progresses, and up through its being entirely completed. Should the construction project be adjusted due to weight or measurements of construction quantities, without designating the number of pieces or the total measurement, and the designated parts completed, the contract can be rescinded by either of the parties via payment for said completed part.
DIFFERENCE: The difference between these two lies in that with the lump-sum price scenario, the entire project must be constructed and payment is effected thereafter upon completion, whereas, as far as the unit price construction contract is concerned, even when the latter is a subspecies of the former, the construction project is paid as the project progresses, albeit partially, based on the estimates submitted by the building contractor, in order to at all times maintain a healthy ratio with the fulfillment of mutual obligations.
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