COST PLUS vs FIXED PRICE CONTRACT

AdobeStock Photo (provided by Frameworks)

Adrian Jones | FRAMEWORKS Inspired Homes

When building a custom home or remodeling your current home, it’s important to know the difference between a cost-plus and a fixed-price contract. A cost-plus contract works off estimates of building expenses making the final cost unknown. A fixed-price contract provides a solid plan for completion and guaranteed cost before construction begins.

COST PLUS CONTRACT

In a cost-plus contract, the homeowner pays for the building cost of materials and labor plus an extra fee for the contractor’s profit proportional to construction expenses. The contractor provides an estimate but as expenses increase, the builder receives a greater profit. Another advantage for the builder is that if the work takes longer, labor costs also increase. With a cost-plus contract, the homeowner’s final cost can skyrocket.

FIXED PRICE CONTRACT

A fixed-price contract predetermines the final cost of building and includes the builder’s profit. It is the simplest form of construction contract and facilitates lender financing. The builder isn’t estimating but budgets according to a well-developed plan for your custom home or remodeling project.

A fixed-price contract guarantees your final construction cost by specifying and locking in prices before moving into construction. It requires the contractor to work with design partners including architects, interior designers, engineers, and sub-contractors to provide accurate and reliable information.

THE BOTTOM LINE

A cost-plus contract benefits the builder because there is no accountability for the building timetable or rising expenses.

A fixed-price contract benefits you because it provides construction deadlines and the final cost in advance, regardless of changes in building expenses.

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Adrian Jones, Owner & Timber Framer, in the business of constructing beautiful and functional structures, and remodeling jobs, continues to embrace and enjoy new building challenges. He has built the culture, teams, and systems to successfully meet the vision and unique building needs of his clients. To find out more, visit 3 Old Town Square or at: frameworkstimber.com

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