8 Types of Restaurant Construction Contract

Business owners and decision-makers must be informed about the principal types of agreements in this sector.

Key Takeaways:

• You could encounter multiple contract types when building a restaurant
• Each contract type has pros and cons
• Understanding how the contracts work can help you make your decision

Show of hands: who enjoys reading contracts? Very few! That’s why so many customers discover too late that they signed up for a nightmare. Giving contracts time and attention is essential, particularly for construction companies with multiple contract types. Let’s explore the main ones so you can make informed decisions.

The most common restaurant construction contracts

Many contractors would like to be your next choice for a construction partner. They all have contracts they like to work under, and some they prefer to avoid. Here’s the agreement terminology you’re most likely to encounter:

1. Lump sum (also called Fixed Price)

Here, contractors offer potential customers one price to complete their restaurant project. This sum covers all their expenses like materials, labor, and so forth. This can be a quick and satisfactory way to seal a contract if all construction variables are precise and tightly calculated, and the customer’s vision is unlikely to change. It’s not so great if the opposite of those is true.

2. Guaranteed maximum price

GMP contracts shield customers against cost overruns since contractors cover any excess costs. This can offer peace of mind since you know the maximum you’ll have to pay. A disadvantage is that it can be harder to find construction companies who’ll work this way since they bear additional financial risk and responsibility.

3. Incentive-based

Good construction companies don’t need an incentive-based agreement, but they can be a powerful encouragement to keep projects on time and on budget. Doing so under these contracts means they’ll get paid more, so it’s more likely – at least, in theory – to happen.

The upside is a win-win for the customer and contractor. The downside is that contractors may cut corners, use lower-quality materials, or rush a job to claim their incentive, maybe even all three! You must hire quality companies who don’t pull such tricks.

4. Design-build

With a combination of the design and building processes, these contracts save time because construction runs concurrently with the design phase. It can be a streamlined process due to the high level of collaboration and communication required between the design and building teams. A project can really motor along when both are in sync.

The big drawback is that works in progress tend to be more organic (read “unpredictable”) in terms of schedule and budget overruns. This can be significantly minimized by hiring a General Contractor who can provide a well-integrated, experienced design and build team from the outset.

5. Integrated project delivery

The customer, construction company, and design team all sign a single joint agreement. Under ideal circumstances, this creates unparalleled communication between parties since everyone is closely connected. Any savings on the project are distributed between everyone involved, and all parties have their costs covered.

A disadvantage: you know what they say about too many cooks! Anything less than perfect collaboration can see integrated projects dragging their heels or, worse, falling apart. This is another excellent reason to use a General Contracting company that can do everything in-house.

6. Cost-plus

Here, the customer covers every job-related cost the contractor incurs. These can vary between projects but generally cover the following:

• Cost of materials and supplies.
• Labor.
• Travel expenses.
• Insurance.

The second part of these contracts (the “plus”) refers to the amount the contractor charges for the work. For example, a contractor’s sundry operating costs amount to $10,000. The charge for the job itself is $15,000. The cost-plus contract would amount to $25,000.

This can be good for customers who know the contractor won’t run short of funds to do their job since the customer is covering the cost. Conversely, contractor spending can get excessive. Thus, some customers cap the cost they’re willing to cover and then find contractors who’ll work within that figure.

7. Time and materials

Somewhat like a cost-plus agreement, this type sees the customer paying only for the contractor’s time and materials, plus their profit for doing the job. This is good since it’s less expensive for the customer than cost-plus. The risk is that increases in the cost of materials are unpredictable. For example, the recent pandemic saw material prices skyrocket.

This potential price volatility means the customer doesn’t know how much to pay until every component is purchased. Even then, additional materials and overtime may be required if the project demands, adding further potential price increases.

8. Unit price

Detailed construction contracts which break everything down per unit. This can include square footage and units of measurement like labor units, supplies, and materials. So, a 3000-square-foot project requiring 20 workers will be billed in part according to those dimensions and labor requirements.

It’s not always possible to precisely predict the number of units a project will require. A solid owner-contractor agreement will ensure the customer is only expected to pay for units the project required, not any anticipated units that went unused. It will also ensure the contractor is compensated if they legitimately need more units than their initial estimate, so bear that in mind.

Construction contracts can be intimidating and complex, but you don’t have to let confusion sour your project. Working with an experienced General Contractor can help restaurant construction go smoothly and encourage a better working relationship and communication between all parties.

We’re here to make your restaurant a reality

RPC General Contractors has 35 years of comprehensive construction industry experience. Just browse our gallery to see some of the restaurant projects we’ve brought to life!

We’d love to help you do the same by guiding you through contracts so agreements are transparent and comprehensible. We’re as passionate about our customers’ projects as they are, and this dedication shows from start to finish, from conceptualization to project planning and execution.

RPC General Contractors will work alongside you, providing only the highest-quality professionals to finish things on time, on budget, and up to code. Call (904) 241-4416 or visit our contact page to ask questions or get a free estimate.