An agreement between owner and contractor is a legal contract between the owner of the premises where a specific job needs to be performed and a licensed contractor who will perform the job. As there are two parties to the agreement, this is known as a bipartite agreement.
The details of the job are provided in the work contract. The contractor is hired through the agreement by the owner to perform a job on the owner’s property. The scope of the job is first explained to the contractor, and then the contractor needs to provide a quotation for the job. The owner takes quotations from different contractors and chooses the one who has the best experience and provides the most competitive rates.
When Do You Need Agreement Between Owner and Contractor?
An owner-contractor agreement is a legal document that is required when the owner of a property needs to hire a contractor for a job on the owner’s premises. The purpose of an agreement between owner and contractor is to ensure that the contractor has understood the job and is agreeable to the remuneration being offered by the owner.
Since the quality required by the owner is specified, and the penalty for any deviation from the contract is mentioned. Therefore both parties are clear about each other’s requirements. The agreement ensures that the contractor completes the work on time and at par with the stated quality standards. There is no dispute with regard to quality or fees.
Inclusions in Agreement Between Owner and Contractor
An agreement between the owner and contractor should include the names of the owner and contractor since it is a bipartite agreement. The agreement should also include the effective date of the agreement, the nature of the job being performed by the contractor, the deadline by which the job needs to be completed, name and address of the contractor, registration number of the contractor, location of the property where the job will be performed, the mode of payment by the owner, the applicable laws of the state for this agreement, the events under which this agreement will stand null and void.
The agreement should also contain the legal rights of the owner and contractor. The penalty for non-performance should also be included in the contract.
While drafting an agreement between owner and contractor, the following points need to be kept in mind:
- The names of the parties to the agreement and the relationship between them should be mentioned
- The governing laws of the state applicable to the agreement need to be stated
- The nature of the job being performed by the contractor including all details regarding completion deadlines and quality parameters
- The payment schedule including the mode of payment, whether lump sum or in installments.
- The rights and responsibilities of both parties to the agreement should be mentioned in detail
- The cost of the job shall be included in the contract
- Changes in job requirements by the owner need to be mentioned and extra payment for the same
[Also Read: Addendum to the contract for construction]
Benefits of Agreement Between Owner and Contractor
The benefits of having an agreement between owner and contractor are:
- There will be no disputes during or after the contract as the details regarding the scope of the work, and the compensation payable has been mutually decided upon before signing the agreement
- The interest of both parties, the owner and the contractor, are protected. The owner is assured that the job will be done within the stipulated time and the contractor is guaranteed the payment mentioned in the contract upon satisfactory execution of the job
- The agreement is null and void if there is a breach of contract
Types of Agreement Between Owner and Contractor
The types of agreement between owner and contractor are:
- Lump sum contract: The contractor is paid a lump sum for the entire job
- Percentage rate contract: The rate is irrespective of the quality or quantity of work. It is based on a cost-plus percentage basis
- Cost plus fixed fee contract: The contractor is paid a fixed fee over and above the total cost of the contract
- Cost plus a percentage of cost contract: Whatever the total cost of the contract, a certain mutually agreed percentage is added to it.
- Domestic building contract: This is used for any commercial or residential building within the country
- Commercial contract: These contracts are required for construction of commercial buildings
Key Terms of Agreement Between Owner and Contractor
The key terms of in a standard contract between an owner and a general contractor are:
- Initial information: This will include the project parameters, the project team. The legal, financial, and time parameters are defined here.
- Responsibilities of the parties: It is the responsibility of the owner to provide full information to the contractor as and when required. All the tests required before the performance of the contract need to be included. The contractor needs to maintain the confidentiality of information.
- Terms and conditions: This will include the cost of the work, instruments of service, claims for consequential damages.
- Scope of services: This includes the standard form of the agreement
- Compensation: The contractor’s compensation will be mentioned here
Download Agreement Between Owner and Contractor
If the owner of a property wants a particular job on the owner’s premises to be assigned to a contractor, then an agreement between owner and contractor needs to be made.
Download a sample construction contract between the owner and a contractor here!
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