The Best Remodel Contract for You

In construction, there are a few different remodel contract options, and each one works a little differently. The contract really sets the tone for the entire project and can play a big role in how smoothly things go and how the project turns out.

Two of the most common contracts used in residential construction are fixed-price and cost-plus. So, what’s the difference between the two, and which one is the better fit for your project?

Fixed-Price

A fixed-price contract is pretty much exactly what it sounds like—the project is completed for a set price. That price is based on the original estimate the contractor puts together and the homeowner agrees to before work begins.

Pros:

Budget Certainty / Risk Transfer

If a contractor misses an obvious scope item or underbids a portion of the work, the cost typically falls on them. The project budget isn’t expected to change unless the original scope of work changes.

Simple Payment Process

Payments are typically made in larger amounts tied to project milestones, which helps minimize the number of individual payments made to the contractor.

Easier Comparisons

A fixed price makes is easier to compare estimates from multiple contractors. Just be sure you’re also comparing the scopes of work and exclusions, so all aspects of the project are picked up in the estimate.

Cons:

Higher Initial Cost

This can sometimes lead contractors to overbid certain scopes of work to create a “buffer.” If that buffer ends up not being needed, the contractor may ultimately walk away with more money than was actually required for the work.

Change Orders 

Fixed-price projects are built around known conditions and an originally agreed-upon scope of work. If any unforeseen conditions come up or additional work is added, those costs are handled through change orders. On some projects, multiple change orders can catch a homeowner off guard, resulting in a final cost that’s higher than the original budget.

Limited Flexibility for Change

Once the initial selections are made and the project cost is established, there’s very little room for changes once work is underway and materials have been ordered. Any changes outside of the original scope will require a change order.

Potential for Disputes

A fixed-price contract puts a significant amount of risk on the contractor. This can sometimes create tension when unforeseen conditions come up and conversations around scope creep start—when the project gradually expands beyond the original plan through added features, extended timelines, or small tasks that add up over time.

Cost-Plus

A cost-plus contract is built around the idea of paying only for the true cost of the project. Instead of locking everything in upfront, costs are revealed as the project moves forward based on subcontractor bids, with the contractor adding an agreed-upon percentage to cover project management and overhead.

Pros:

Higher Flexibility for Change 

The contractor’s actual costs are paid as they occur, which gives the homeowner flexibility to make changes along the way and allows the contractor to easily adapt to mid-project adjustments.

Quicker Start

You don’t need a finalized plan, blueprints, or complete scope of work to start the work. Work is able to begin with a general idea and decisions can be made as certain milestones arise.

Higher Transparency

The contractor submits all receipts and invoices to the homeowner, giving them full visibility into where their money is going and how much remains in the overall project budget.

Potential Savings

Unlike fixed-price contracts, where contractors may build in a higher contingency, a cost-plus contract removes the need for that, which can potentially lower the overall project cost.

Cons:

Budget Uncertainty

Because the homeowner is paying the actual costs of the project, the final price isn’t guaranteed. Staying on top of the budget throughout the project is essential to prevent costs from ballooning unexpectedly.

Increased Administrative Work

Each receipt and invoice needs to be reviewed to track the overall budget, which increases the workload for both parties. Payments are also made more frequently than with a fixed-price contract, adding to the amount of paperwork involved.