Fixed-price vs. cost-plus remodel contracts

Remodel contracts usually price the work in one of two ways. A fixed price is one amount for a described scope. A cost-plus contract means you pay the cost of the work plus a fee. Neither one is automatically the better deal. The written words decide who carries the risk when something costs more than expected.

Fixed price

You and the contractor agree on a total for a specific scope. If the work in that scope costs the contractor more than they planned, that overage is theirs, unless the contract says otherwise. If you change the scope, or a hidden condition shows up, the price changes only through whatever change process you agreed to.

The weak version of a fixed price is a thin scope. A single total labeled "kitchen remodel" does not say whether the electrical panel, the floor, or the appliances are included. Read the estimate line by line, and write the scope so the number means one job.

Cost-plus

Under a cost-plus formula, the contractor's fee sits on top of labor, materials, and often subcontractors. You see more of the invoices. You also carry more of the risk if the work takes longer or the materials cost more, unless the contract sets a ceiling.

Maine is one state that talks about this directly. For a home construction contract over $3,000, the statute requires the total contract price, including all costs of the work, or, if the work is priced on a cost-plus formula, "the agreed-upon price and an estimate of the cost of labor and materials" (10 M.R.S. § 1487). That is Maine law, not a national form. It is a useful picture of what "cost-plus" should not leave blank: a stated price or formula, and an estimate of labor and materials.

What to get in writing either way

• The scope, including allowances and exclusions.
• The price method. One total, or a formula you can recompute from the invoices. If there is a fee, say whether it is a flat amount or a percentage, and what it is a percentage of.
• What "cost" includes. Labor, materials, subcontractors, dumpsters, permits, and the contractor's own supervision are easy to argue about later if the contract is silent.
• A ceiling, if you want one. A not-to-exceed figure is something you negotiate. It is not implied.
• How you will see the costs. Which invoices you get, and when.
• Changes. A written change order, with the price and the days, before the extra work. See change orders.
• Payments tied to work you can see. California's board says the contract needs a detailed written payment schedule, and that payments cannot exceed the value of the work performed, other than the down payment rules (CSLB). Other states differ. The habits are in deposits and payment schedules.

How to choose

Choose from the scope you actually have, not from a slogan. A fixed price fits when the products are selected and the scope is specific enough that two contractors would picture the same job. A cost-plus formula is easier to explain when a lot is still unknown, as long as the formula, the estimate, and your right to see invoices are written down. If you are not sure the contract does that, do not sign it on the spot. The Texas AG says not to sign a contract you have not read, and not to leave blanks (Texas AG).

Where RenoBinder fits

Either contract still needs a budget with planned, committed, and paid amounts. A free project keeps those next to the change orders so a cost-plus invoice, or a fixed-price extra, shows up before the last bill. Compare plans.

Open the free tool

Launch offer: 30% off with code LAUNCH30