Understanding Your Contract: Cost Plus Vs. Fixed Price

Building a custom home, or even added an addition to your current home, happens in stages. There is the dreaming phase, then there’s the planning, and then things get serious when you hire contractors and interior designers to come work alongside you. You’ll discuss the details and specifics of the renovation or build, talk about materials and strategies and timeframes. And money. When it’s time to talk about money, your contractors will probably start using terms like “costs plus” and “fixed price.”

These are two very different pricing strategies, and knowing the details about each one will allow you to enter the money conversation with confidence. Kanox Construction used fixed pricing for a variety of reasons, but it’s always important to know your options so you can make confident and informed decisions.

Here are a few things you need to know about costs plus vs. fixed price and how it impacts your contract.

What Does Cost Plus Mean?

If your contractor works with a “cost plus” pricing strategy, it means they will charge you the cost of materials to do the project, plus an agreed upon mark up fee. This pricing strategy will be applied to every aspect of the job, including hourly labor rates and work performed by outside contractors such as plumbers, project managers, and site developers.

This works for the contractor because it ensures they make a profit on the job. However, you do not have a set price for how much everything is going to cost when you sign the contract. They mw to give you a ballpark estimate, but they won’t know the cost of the materials or price for wwww labor until it is done. One the contractor has assessed the projects we’ve and received invoices from all outside contractors, they can add up the cost of the job and present it to you, plus their mark up.

With this pricing strategy, you’re not completely in the dark. You will receive periodic updates for how the project is going and the amount of money spent up until a certain point.

Some contractors have stopped using this pricing strategy because it requires careful documentation and organization of expenses. It also requires contractors to front the costs of the materials, which can be difficult for smaller companies or those with little capital upfront.

What Does Fixed Price Mean? 

If your contractor works with a fixed price strategy, you’ll have more information up front. You’ll know what you are paying before construction begins. The cost of the price will be calculated based on drawings and plans agreed upon by both you and the contractor. This strategy is typically implemented by larger and more experienced contracting companies, simply because it requires a lot more effort and experience to do effectively. 

This strategy encourages contractors to think about each stage of construction ahead of time, and actively work toward a common goal. It also serves as an incentive for contractors to stick to the agreed upon budget, because anything over comes out of their profit.

A fixed price contract does require more work for the contractor up front, but experienced companies should be able to handle it. Fixed pricing increases the chances of a project being completed on time and on budget. It also shows you, the client, that the contractor is committed to keeping you involved in the project every step of the way, and avoids surprises. 

The TakeawayThe day you’re sitting down to sign your contract and get started on your big construction project is not the day to find out what pricing methods your contractors use. It’s also not the right time to learn about these different strategies and try to figure out how they will impact your project and your finances. Kanox uses fixed pricing because they know it’s best for the client. Fixed pricing helps avoid unexpected costs, is easier to budget, and supports their focus on integrity through every phase of the building process.

Knowing this information ahead of time will save you time and money, and will help the fiance process of the project move forward seamlessly.

Want to learn more about how our innovative pricing strategies will help get your project done right? Click here! 

Back to blog
Pacific Home Warranty
BBB Accredited Business
Homeowner Protection Office
BC Housing
Work Safe BC