Construction contracts can take different forms depending upon the preferences of the buyer/owner and the builder/contractor. It is important for all parties involved in the negotiation and drafting of a Construction Contract to be represented by a qualified and experienced legal professional who can provide advice on contract terms.
Lotzar Law Firm, P.C. can provide representation to clients who are entering into Construction Contracts. Our experienced Scottsdale Arizona real estate law professionals will advise you on the different available contract types and the advantages and disadvantages of each form of Construction Contract. We can also help to facilitate negotiations and draft a contract to maximize the chances of a deal getting done while also protecting your interests. Call today to speak with a member of our legal team to learn more.
What is a Guaranteed Maximum Price Construction Contract?
Construction contracts can be categorized into different types of Agreements. One common type of Construction Contract is a Guaranteed Maximum Price (GMP) contract. A Guaranteed Maximum Price Contract is an alternative to a Fixed Price Contract and to a Time And Materials Contract that incorporates elements of both contract types.
A Fixed Price Contract is a contractual agreement in which a builder/contractor agrees to complete a construction project for a set price. A Fixed Price Contract provides certainty to a buyer who knows what the construction project budget will be. However, there are disadvantages for buyers and builders. Builders face the risk that they will become responsible for cost overruns. Buyers face the risk that a builder will engage in cost-saving measures that maximize profit but that result in a substandard finished product.
A Time and Materials Contract is a construction contract in which the buyer agrees to pay for the cost of time and materials as well as an additional cost of overhead and profit for a builder. Buyers have many disadvantages with this contract type. A buyer faces uncertainty about the final cost of a construction project. Further, builders have little incentive to look for the most cost-effective materials or to limit time spent on the job.
A Guaranteed Maximum Price Contract is a third alternative. With a GMP contract, a buyer agrees to compensate a builder for time and materials up to a set maximum price. This ensures that the builder is paid for work performed and materials used provided the maximum price is not reached. A Guaranteed Maximum Price Contract may also include a clause in which the buyer and the builder agree to share the value of any savings. This creates an incentive for a builder to look for cost-savings but ensures that a buyer also benefits if the project comes in under budget.
A GMP Contract can be a risk for a builder because the builder could still be forced to pay for any cost overruns. Buyers also face the risk that a builder will overstate the initial price of the construction job in order to ensure that the maximum price is not reached or to increase profits by obtaining a portion of cost savings.
A GMP Contract can be a good option when carefully drafted and when builders have a realistic idea of the expense associated with a project. Lotzar Law Firm, P.C. can help you to determine if a Guaranteed Maximum Priced Contract is appropriate for your construction project. Call today or contact us online to speak with a member of our legal team and learn more.
Private Activity Bonds can result in significant tax savings because they make it possible for projects to be financed on a tax-exempt basis. However, entities who receive PABs have to comply with state requirements as well as with rules and regulations set forth by the Internal Revenue Service (IRS). Among other things, the rules limit the types of projects, facilities and equipment that can be financed through the use of PABs.
A Covenant Not To Compete, or a Non-Compete Agreement, is a contract that an employee signs agreeing not to go to work for a competitor or enter into a competing business. A Covenant Not To Compete may also be a condition of selling a business. A part of the value of the company being sold is derived from the transfer of the brand and good will of the business, and a Covenant Not To Compete protects the new owner from losing that value if the original owner opens a competing enterprise.
Both a Subchapter C-Corporation and a Subchapter S-Corporation allow a business to operate as a distinct legal entity from its owners and shareholders. Both C-Corporations and S-Corporations provide protection from liability so that the owners are not personally at risk for debts or Judgments against the business. As long as corporate formalities are maintained, the risk of loss owners of C-Corporations and S-Corporations face is limited to the extent of their financial investment in the company.
A Secured Transaction is a Loan Transaction in which a lender is provided with collateral by a buyer. The lender takes a security interest in the collateral. As a result, if the loan is not paid back, then the lender may foreclose or may repossess on the item that is acting as the collateral. If the debtor declares bankruptcy, the lender is also protected because of the security interest in the collateral. The lender may sell the item to recover the money that was discharged in the bankruptcy filing.
Building affordable rental housing can allow your business or not-for-profit to both benefit society and achieve financial success. However, it is essential to ensure that the benefits and advantages of constructing affordable housing outweigh any costs associated with construction, rehabilitation and ongoing operations. Maricopa County and the state of Arizona have programs in place to provide financial assistance to developers who build affordable rental housing or who convert existing units to affordable residences for lower and middle-income Arizonans. There are also tax-credits available to developers that can provide further financial incentive.
When forming a not-for-profit business, you must give the company a name. In many cases, nonprofits are incorporated to provide protection to the company owners. This means that the not-for-profit must comply with the requirements set forth in state law for naming corporate entities.
Private Activity Bonds (PABs) are securities that are issued by a local government or on behalf of a local government. Unlike most government bonds, Private Activity Bonds are intended to provide funding for a project that will be undertaken by a private entity or private user. Although the government issues the bond, it generally does not pledge its credit or guarantee payment of the bonded debt. Private Activity Bonds can result in reduced financing costs, but there are limited projects for which PABs may be used.
A Material Breach is a failure of the Contract that is so fundamental to the purpose of the contract that it renders the Agreement irreparably broken. Also called a “Total Breach,” a Material Breach entitles the other party to the agreement to end the contractual relationship and seek legal damages in court.
