Fixed Price vs. Cost-Plus Contracts

Q: What is a fixed price contract?

A: A fixed price construction contract is just what it sounds like: a contract in which the final price is agreed to upon signing and remains unchanged from start to finish. Both the construction company and client know the total cost of the project upfront, and it stays the same despite unforeseen material or labor costs.

This type of contract is heavily skewed in favor of the client as any additional costs will be the responsibility of the company. It is the company’s duty, then, to be straightforward and extremely accurate with the projected budget. If they are, then everyone benefits; if they fall short, then they take the hit, not the client.

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“We believe that building a home should be an enjoyable process, not a stressful one.”

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Q: What is a cost-plus contract?

A: Cost-plus bids consist of all project expenses (materials, labor, permits, equipment, consultations, etc.) plus whatever fixed fees the construction company charges. In other words, the client reimburses the company for any costs associated with the job and then pays extra to offset use of the company’s time and resources—the name “cost-plus” is quite literal.

This type of contract is more loose in terms of pricing, as there is no guaranteed final price agreed upon beforehand. Unfortunately, this means that the client can be hit with extra unexpected costs at the end of the project that they’re contractually liable for—the total price fluctuates with ease and, as is typical of most things, does not usually come in under budget. While contractors should be expected to provide an accurate estimate in good faith, they can’t account for every snag or hiccup the job might encounter.

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Q: What type of construction contract does Stonewall Homes use?

A: We pride ourselves in using fixed price contracts. We believe that building a home should be an enjoyable process and not a stressful one—and if there’s one thing most everyone is stressed about, it’s their finances. That’s why we work meticulously to provide an exact guaranteed price to build before you ever even see a contract.

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Q: What is Stonewall Homes’ bidding process?

A: Our bidding method is a lengthy, sometimes tedious but always exciting process. Because we want to give you the most accurate estimate possible right off the bat, we sift through every detail of your future home, from sidewalks to rooftops, and price each item individually.

We then break the bid into two sections: 1) the absolute least expensive way to build with a total guaranteed cost (or, your needs), and 2) a list of optional items with pricing for each item (or, your wants).

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“We work meticulously to provide an exact guaranteed price to build before you ever even see a contract.”

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The advantage of this method of bidding is the transparency it provides. Dividing the bid into two categories gives you insight on how much each upgrade costs and allows you to make as many changes as needed to land on a final number you feel comfortable with.

For example, if you’re thinking about upgraded roofing, we’ll show you the upgraded cost alongside our standard pricing so you can clearly see the difference. Or, if you decide after signing that you want to add a dog wash, we’ll price it, draw up a change order, and present it for your approval. The point is that you’ll always know how much you’re spending and where exactly your money is going.

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Q: Is it ever more advantageous to use a cost-plus contract?

A: While we certainly recommend fixed price contracts, there are a few reasons one might decide cost-plus is a better choice for their project. For example, if a job is small-scale, like a well-planned bathroom renovation, there’s less chance of accruing unforeseen costs, so it might make sense to take that risk.

Likely the biggest lure of cost-plus contracts is the speed at which they can be drawn up. One of the disadvantages of fixed price contracts is their tedious nature—it takes much more time to price and bid fixed price jobs. So, if time is of the essence for a project, going the cost-plus route will certainly save it, but potentially at a monetary expense.

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Want to know more? Click HERE to see our building process from start to finish. Or, check out this article to read more about cost-plus contracts and this article for fixed price contracts.