Fixed-price vs cost-plus contracts: choosing the right structure
The contract type shapes who carries the risk. How to pick the right one for the job.
Two ways to carry risk
Under a fixed-price (lump sum) contract, the builder commits to a price and carries the risk of cost overruns. Under cost-plus, the client pays actual costs plus an agreed margin, so the client carries more of the cost risk.
When each fits
Fixed-price works well when the scope is well defined and can be priced with confidence. Cost-plus can suit renovations or complex jobs where the full scope isn't knowable up front — but it relies on strong client trust and transparent record-keeping.
The trade-offs
Fixed-price gives the client certainty but pushes the builder to price in contingency. Cost-plus removes that guesswork but can make clients anxious about the final figure. Some builders use fixed-price with clearly defined provisional sums for the uncertain parts.
Be clear either way
Whichever you use, the contract should spell out exactly how variations, provisional sums and margins work, so there are no surprises.
