The two most commonly used contract types in the industry are:
- Lump-Sum Agreement: In this form of agreement, the contractor agrees to perform the work for an agreed fixed price. Exceptions to that fixed price include costs of Owner Selected Items (OSI) in excess of the agreed OSI allowance, and the cost of work performed beyond the extent of the original scope. The value of these exceptions would be added to the initial fixed price via Change Order.
- Time and Material (T&M) Agreement: In this form of agreement, the contractor charges the Homeowner for the cost of materials it purchases and the labor cost (based on agreed hourly rates) it expends to perform the work. In addition, this form allows the contractor and Homeowner to opt for a not-to-exceed (“NTE”), which would be the maximum amount the contractor could charge the Homeowner for the work.