Construction Contracts
“Fixed price” and “cost plus” describe different approaches to construction pricing. Neither label tells the whole story. Homeowners should compare how scope, fees, allowances, changes, documentation, and uncertainty are handled in the actual agreement.
What Is a Fixed-Price Construction Contract?
A fixed-price agreement establishes a contract amount for a defined scope, subject to the agreement’s allowances, changes, exclusions, and adjustment provisions. Its usefulness depends on how clearly the work and assumptions are documented.
What Is a Cost-Plus Construction Contract?
A cost-plus agreement generally requires the homeowner to pay defined project costs plus a contractor fee. The agreement should explain which costs are reimbursable, how the fee is calculated, what documentation is provided, and whether a budget, estimate, or maximum amount applies.
Quick Answer
Do not select a contract type by its name alone. Compare scope certainty, cost definitions, contractor fees, allowances, contingencies, documentation, audit rights, changes, schedule, and the homeowner’s ability to manage ongoing decisions.
What Homeowners Should Compare
Scope Definition
A fixed price built on incomplete information may still contain allowances and exclusions. A cost-plus project also needs a clear description of the intended work.
Cost Visibility
Ask what invoices, receipts, subcontractor proposals, time records, or cost reports will be available and how often reporting occurs.
Builder Fee
Understand whether the fee is a percentage, fixed amount, or another structure—and which costs are included in the fee calculation.
Allowances and Selections
Clarify how unfinished selections are budgeted and how differences between allowance and actual cost affect the contract amount or project forecast.
Contingency
Ask whether contingency is included, who controls it, what it may cover, and how unused amounts are handled.
Changes
Determine how owner changes, design revisions, concealed conditions, code requirements, and substitutions are priced and approved.
Budget Updates
For either structure, ask how frequently the homeowner receives an updated projection of committed costs, pending decisions, approved changes, and anticipated final cost.
Schedule and Procurement
Understand how decisions, pricing changes, material lead times, and delayed approvals may affect project duration and cost.
Legal Review Matters
RCC does not provide legal advice or determine which contract is legally appropriate. A qualified attorney should interpret contract language and advise the homeowner about legal rights, duties, and risk. RCC can help organize business and project questions for review.
Contract-Structure Questions
- ✓ Scope and documents identified
- ✓ Cost definitions understood
- ✓ Builder fee calculation clear
- ✓ Allowances and contingency explained
- ✓ Reporting requirements documented
- ✓ Change procedures defined
- ✓ Budget-update frequency established
- ✓ Legal review completed
Final Thoughts
The best comparison is not “fixed price or cost plus?” It is “how does this specific agreement allocate uncertainty, documentation, decisions, and financial responsibility?”
As The Homeowner’s Representative™, RCC helps Metro Atlanta homeowners identify project and business questions that need clarification before construction begins.
Understand the Risk Before You Sign
The Build Risk Assessment™ helps identify potential concerns involving scope, budget, builder selection, contracts, and project readiness.