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The section of contract law that pertains to construction contracts is known as construction contract law. In those contracts, one party agrees to perform a job, and the other party agrees to pay. It’s a legal agreement that may result in disputes, and a judge or arbitration panel will often refer to the construction contract law of the jurisdiction to determine a legal outcome. National government contracts are often not governed by regional construction contract law, but rather by national statutes and regulations that may or may not pertain directly to construction contracts. There are several types of construction contracts that are governed by law, including unit price contracts, lump sum contracts, and cost plus a fixed-fee contracts.
A unit price contract is a legal agreement in which the contractor is paid a price per unit that he delivers. For example, a contractor agrees to excavate land for a set monetary amount per cubic yard. Many contractors include unit price cost estimates in their bids for government contracts. The contractor agrees to a fixed fee in a lump sum contract and is obligated under construction contract law to perform, even if the job costs more than anticipated, and when there are no legal ways to breach the contract. In a cost plus a fixed-fee contract, the party who hires the contractor pays for the contractor’s costs, including labor and material, plus a percent markup.
There are legal requirements for writing and signing valid construction contracts, and those requirements are often defined by the region’s construction contract law. Some of the requirements in many jurisdictions include the involvement of mentally capable parties who understand and are able to form a contract, a definite subject matter of the contract that doesn’t violate any local or regional laws, and a clear acceptance of a proposal that binds both parties and mutual agreement to enter the contract with consent and without duress or fraud. Courts often deem construction contracts that don’t meet all of these requirements as invalid, allowing one party to abstain from performing the terms of the contract. For example, a legal agreement in which the contractor agrees to build a commercial building that violates local permitting laws and other ordinances will most likely not be considered a valid contract according to construction contract law. The other party signing the contract is often able to walk away without legal consequences.
Government contracts often impose additional legal requirements not found in regional construction contract law. For example, a United States contractor may be required to hire a certain number of minority sub-contractors. Third parties can often sue contractors who enter into government contracts but fail to meet government statutes and regulations that govern the contractor’s performance.