Fixed Price versus Cost Plus Contracts

In most cases, Cost Plus Contracts are a series of budget allowances for much of the construction phases and finishes. The allowance description is typically vague regarding the specifics, often leaving selections to be made after the contract is signed. Most of the horror stories you hear about building a custom home revolve around budget allowances. The common story is a builder lures a client in with a low contract price full of allowances that fall short when selections are made, resulting in several expensive change orders. A Cost Plus Contract provides builders with a cover up for poor estimating. This method is also flawed in favor of the builder because there is no incentive to keep prices down; the more a trade contractor charges, the more the builder makes! It is so common that many banks require a client to get a loan that is 10%-15% greater than the contract amount due to cost overruns.

Although it requires more work on our part, as well as the clients, we almost exclusively utilize Fixed Priced Contracts. This method requires us to finalize almost all your selections prior to us obtaining bids from all our suppliers and trade partners. This method also requires us to dig deep into your project during pre-construction by building your home through our detailed estimating software. For our customers, it takes the financial risk of cost overruns inherent in Cost Plus Contracts out of the equation. With final plans and detailed specifications in hand, we can confidently go to contract knowing that your contract price is an accurate reflection of where the final number will be at the end. Outside of a few small changes that may come up during the build, your contract price is extremely accurate. In fact, over the past few years our clients’ change orders have averaged just under 1% of the contract price.