The final cost of your house may change by tens of thousands of dollars depending on the contract you sign. When deciding between a cost-plus vs fixed-price construction contract, you are essentially deciding who bears the risk. This risk includes hurricane-season delays, design modifications, and growing material costs.
This guide provides a clear explanation of both types of contracts. It covers about cost, the weather in Florida, maintenance, the pros and cons, and when to choose each choice.
What Is A Cost-Plus Construction Contract?
In a cost-plus construction contract, the builder gets paid for both the agreed-upon price and the actual cost of labor and materials. The fee is typically a fixed sum of money or a certain percentage of expenses. Each invoice is shown to you, but the total cost is not set before work begins.
How Do You Calculate The Builder’s Fee?
It’s common for builders to charge between 10% and 20% of the total cost of the project. Others instead charge a flat fee, which keeps their profit level even as costs go up.
What Are The Pros And Cons Of Cost-Plus?
You have more control and visibility with cost-plus, but there is less price assurance.
| Pros | Cons |
| Complete access to invoices, bids, and receipts | There is no set end price unless a cap is added |
| Easy to modify layouts or finishes in the middle of construction | Takes longer to review expenses |
| The pricing has no hidden contingency padding | The cost may increase with each upgrade |
What Is A Guaranteed Maximum Price?
A guaranteed maximum price (GMP) adds a cap to a cost-plus contract. Costs over the cap are covered by the builder unless you change the scope.
What Is A Fixed-Price Construction Contract?
A fixed-price contract, also known as a lump-sum contract, sets one overall cost for the entire scope of work prior to the start of construction. If labor or material expenses increase, the builder bears the risk. Not until you sign off on a written change order will your price change.
What’s Included In A Fixed Price?
The cost includes expenses, permits, labor, supplies, and the builder’s profit. Builders typically include a contingency, typically between 5% and 10%, to protect against fluctuations in the market.
What Are The Pros And Cons Of Fixed-Price?
| Pros | Cons |
| Clear total cost from day one | Contingency may raise the price |
| Easier bank financing and budgeting | Less visibility into actual costs |
| Builder absorbs most cost overruns | Changes cost more through change orders |
| Less homeowner oversight needed | Plans must be complete before signing |
How Do Change Orders Work?
A signed document that adds, deletes, or modifies work is called a change order. It shows the new price and any changes to the schedule before the work starts.
Is It Possible For A Fixed Price To Increase?
Yes, but only if changes to orders or allowance overages are authorized. Allowances are budgets that are set aside for things like tile or fixtures. Your expenses increase if you choose more expensive things than the allowance.
Cost-Plus Vs Fixed-Price Construction Contract: What’s The Difference?
Who bears cost risk is the primary difference between cost-plus vs fixed-price construction contract. In cost-plus, the homeowner bears the expense in return for openness. In fixed-price, it is carried by the builder in return for a greater initial cost.
| Feature | Cost-Plus | Fixed-Price |
| Final price | Unknown until done | Set before work starts |
| Cost transparency | Full, invoice by invoice | Limited to the total |
| Who carries cost risk | Homeowner | Builder |
| Design changes | Simple and flexible | Need paid change orders |
| Builder profit | Fee of about 10–20% | Built into the price |
| Homeowner involvement | High | Low to moderate |
| Best for | Evolving luxury custom homes | Fully designed homes |
How Does The Climate In Florida Affect Each Contract?
Hurricane season, which lasts from June 1 to November 30, might cause schedule delays or material price increases. The Florida Building Code also mandates impact-rated windows, doors, and roofing for homes in Palm Beach County.
- Cost-Plus: You bear the cost of storm-related price increases.
- Fixed-Price: The builder bears the cost unless the contract excludes natural disasters.
Which Florida Laws Give Homeowners Protection?
The law in Florida protects deposits and keeps people from putting liens on your property.
- Deposits Over 10%: The contractor must apply for licenses within 30 days and start working within 90 days of the permits’ issuance (Fla. Stat. 489.126).
- Licensing: Check the license of your builder with the state before signing.
- Lien Releases: Get them from suppliers and subcontractors before each payment.
What Role Does Maintenance Play?
Mid-build, cost-plus makes it simpler to switch to storm-resistant, low-maintenance materials like metal roofing. Fixed-price buyers should make sure they can make the choices they want before they sign.
Cost-Plus Vs Fixed-Price Construction Contract: When Should You Choose?
When your design is still developing and you want complete cost clarity, go with cost-plus. When your plans are finished and a strict budget is crucial, go with fixed-price. The ultimate decision should be based on your budget, schedule, and level of comfort with risk.
When Is Cost-Plus A Better Option?
High-end custom homes with specific finishes
- Projects that start before each choice is made
- Owners who wish to review every expense
When Is Fixed-Price A Better Option?
- Homes with complete plans and selections
- Strict budget-conscious buyers utilizing construction financing
- Owners who would rather be less involved on a daily basis
How Do You Choose Between Them?
1. Check the completeness of your choices and plans
2. Decide on a maximum budget that includes a 10% safety net
3. Find out what type of contract your lender prefers
4. Compare written bids for a cost-plus vs fixed-price construction contract from the same builder
Is It Possible To Change Contract Types In The Middle Of A Project?
It is uncommon and requires a written change to the contract. When plans are finalized, some builders go from cost-plus to fixed-price.
Conclusion
Your budget, level of risk, and design stage must all be taken into consideration when choosing between cost-plus vs fixed-price construction contract. Cost-plus provides complete transparency and flexibility. Fixed-price provides less control and more assurance. Urban Building Concepts can help you figure out which contract works best for your home plan in Palm Beach Gardens.
Frequently Asked Questions
1. Which contract type do lenders prefer?
Most construction lenders prefer fixed-price contracts. A set price makes it easier to approve the loan amount. Cost-plus loans are possible but often need a GMP. Ask your lender before you sign with a builder.
2. What should every construction contract include?
Every contract should list the full scope of work. It should include a payment schedule tied to finished milestones. It should explain change orders, allowances and warranties. It should also name a start date and a completion window.
3. How do I protect my deposit in Florida?
Check that your contractor holds an active Florida license. Keep your deposit at or under 10% when possible. Larger deposits trigger strict permit and start deadlines under state law. Always collect lien releases before each payment.
4. Is cost-plus always more expensive?
Not always. You pay real costs instead of a padded estimate, so savings are possible. Final cost depends on how many changes you make.
