Construction contract types—and why we usually go lump-sum fixed price

What it is: You and the contractor agree on a total price for a defined scope of work. That price is the price—unless you both sign a change order that adds or removes work.

What it excels at:

• Kitchens, baths, additions, and other jobs where the scope can be designed and measured up front
• Homeowners who want to sleep at night knowing the number
• Builders who are willing to do the hard estimating work before the first hammer swing

Tradeoffs:

• Takes more time and effort from the builder up front to price carefully
• Requires a solid scope (and usually solid design) so the number means something
• Unknowns that appear later get handled through change orders—not by quietly padding your bill every week

Why this is my default at HCC:

I’ve found customers are happier when they know the cost up front. They worry less. They don’t feel like the meter is running every time someone opens a wall. Costs only change when you choose a change—and we write that change down.

Yes, fixed price is harder on the builder. Estimating a remodel right takes hours. That’s our job. I’d rather sweat the pricing on the front end than keep the homeowner guessing on the back end.

We pair this with a clear scope, milestone payments, and change orders—covered in the earlier post.

What it is: You pay the actual costs of the job (labor, materials, subs, etc.) plus an agreed fee or percentage for the contractor’s overhead and profit. The books stay open: the builder shows receipts and costs as the work goes.

What it excels at:

• Jobs where the true scope can’t be known until work is underway (severe unknowns, exploratory demolition, “open it up and see”)
• Situations that need maximum flexibility more than a locked number

Tradeoffs:

• More record-keeping for the builder—and more transparency required
• More risk and uncertainty on the homeowner: the final number isn’t fixed when you start
• Trust has to be high, because you’re funding actual costs as they land

When I’ll use it:

Occasionally—and only when it’s genuinely impossible to know the scope ahead of time. Cost-plus is a tool for uncertainty, not a shortcut around planning. If we can design it and price it, I’d rather give you a lump sum.

What it is: Often built like cost-plus, but with a ceiling. You pay actual costs plus fee, up to a maximum. Above that cap, the contractor typically eats the overrun (unless a change order adds scope).

What it excels at:

• Larger or complex work where you want cost transparency and a hard stop
• Owners who won’t accept an open-ended bill but still want flexibility during construction

Tradeoffs:

• Needs enough design and estimating to set a meaningful maximum
• Savings under the cap are sometimes shared or returned to the owner—spell that out in writing
• Not as simple as a single fixed price; paperwork is heavier

Think of GMP as a hybrid: openness of cost-plus, with a lid for the homeowner.

What it is: A cap language you’ll often see on time-and-materials (or sometimes cost-plus) work: labor and materials are billed as incurred, but total billings won’t go past an agreed not-to-exceed amount without a written change.

What it excels at:

• Repair or exploratory work that can’t be fully priced on day one
• Giving the homeowner a “won’t go past this without talking” fence

Tradeoffs:

• Still not the same peace of mind as a true lump sum for a fully designed remodel
• The NTE only works if the scope of what’s inside the cap is clear

NTE and GMP both create a ceiling. GMP is usually the fuller “cost-plus with a max” package; NTE is often the cap bolted onto T&M.

What it is: You pay agreed labor rates for time spent, plus materials (often with a markup). No fixed total unless you add an NTE.

What it excels at:

• Small repairs, service calls, and “we don’t know what’s behind that wall yet” work
• Speed when stopping to write a full fixed bid would cost more than the job

Tradeoffs:

• Homeowner carries more cost risk if the job grows
• Needs honest time tracking and clear rates in writing

For tiny, uncertain work, T&M (sometimes with NTE) can be the honest tool. For a planned master bath or addition, I’d rather lock a lump sum.