7 Things to Know About Fixed Price and Cost Plus Contracts

A fixed price contract sets the total price up front, so you know what you will pay unless you change the plans. A cost plus contract charges the actual cost of the build plus the builder's margin, so the final price is not known until the end.

The 7 things to know

1. Price certainty. Fixed price gives you a known total. Cost plus does not.
2. Who carries the risk. With fixed price, the builder mostly carries the budget risk for the agreed scope. With cost plus, you mostly do.
3. Flexibility. Cost plus is highly flexible. With fixed price, variations are priced as they arise.
4. Best fit. Fixed price suits standard designs and tight budgets. Cost plus can suit complex or uncertain projects.
5. Fixed price watch outs. Ask what is excluded, which items are provisional sums, how rise and fall clauses work and how variations are priced.
6. Cost plus watch outs. Ask how the margin is calculated, whether you will see invoices for every cost, whether there is an estimated total and a cap, and how often you will get cost reports.
7. A fixed price can still move. It can go up through variations, provisional sum adjustments or allowed price escalation clauses.

Which should you choose?

Most home buyers building a standard design are best served by a fixed price contract. Cost plus can suit unusual or heavily customised projects. Whichever you lean towards, choose a builder who explains your options in plain language.

This article is general information, not legal advice. Have your contract reviewed before signing.

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