Cost plus puts the risk of overages on the homeowner. You pay real world costs plus a % for all labor and materials. Plus is you have visibility to all costs and receipts.

Lump sum puts the risk on the contractor, who charges a bigger % to assume that risk. It has zero visibility into any of the real world costs, as you only get the bottom line price. Their costs and their profit are none of your business. You are paying for risk assumption, not cost transparency.

If you have a hard low budget, pick a lump sum contract and change nothing. If you have an aversion to the cheapest possible materials and methods used, and want cost visibility, then cost plus is for you. The risk will be on you to not over specify, or change things, or do adds ons. Most contractors will have a fee associated with you dragging your feet on making those decisions. They run a business and will move on if you do not get your stuff together.

Fixed Price - you agree to what will be included and are given a fixed price. This can inflate some items, risk is to builder, not as common these days. A well done cost plus contract isn’t scary.

I take it Cost Plus would be good (for the homeowner) for a simple, straightforward project and Fixed Price would be good for say a complicated renovation of an older home?

My project is an 18' x 18' addition to a 4-year-old home.

Most contractors will have some some cost escalation clause in a fixed price contract. You cannot have lumber jump 60% in the 2 months between signing and starting and stay in business.

A 200K addition is going to be 200K, no matter what type of contract you choose. The contractor is more important to choose than type of contract. You cannot contract legalese your way out of choosing a bad partner. Divorce ought to teach you that one! Avoid the smooth talking low ballers. They will take you for a ride.

Aware of your other thread which got quite heated. What makes sense is what’s available and realistic in your area. It doesn’t matter what you want a contract to look like if no one wants to work within the one you want.

I think what many find scary about a Cost Plus is that the contractor isn’t beholden by even the thinnest of threads to the original estimate.

The numbers are based on real world numbers, not thin air. He gets quotes from his subs, and suppliers. Market changes affect everyone. Even a fixed price contractor will not be committed to that bottom line price if the commodity market changes. This is why quotes are not good forever. Most used to be a 30 day limit. But many have gone to a 10 day limit on holding prices. That is the reality of construction in a voilatile market.

If you want to build or remodel, you have to advance plan the project, first of all. An architect, some designers, or even an experienced DIYer can do this. It is a paid service. The details you design and research lets you build a realistic budget. Then you have to have the cash to fund it, and act quickly, to lock them down, after finding that right contractor. Contract type is largely irrelevant if you find the right contractor.

If you don’t have a couple of hundred thousand in cash, or enough equity for a heloc, there is no point in dreaming. Doing requires cash for action. Or cash and blisters, to gain that experienced DIYer status.

I have to agree first you find out what you can afford. Then depending on what is involved you will need maybe a structuaral engineer or just the architect or maybe just a good designer. I think as far as the actual contract is not such a big deal if you have it all spelled out at the beginning. Every time you change anything in a contract it costs money no matter what contract you have. This is where clients get into trouble . Reread Adam Engineering post. So talk to the bank or if you have cash figure what your budget is and 200K is realistic for thta size of addition and if it is a kitchen way more .Maybe orovide us with a bit more info too. You can also post that and a plan here in a commnet and we can help with that part for free.

Hi, Mike,

The scariest part of any construction project--new or remodel- isn't the contract, in my opinion. I submit the scariest part is the contractor's construction cost estimate. If the estimate is a number derived from some imaginary cost/sq. ft. or some figuring on the back of a cocktail napkin you're in trouble no matter what form of contract you enter into. Unfortunately, some contractors simply aren't good at estimating and won't be able to produce an estimate you can "take to the bank." Most homeowners (and to be fair, most architects) feel entitled to high quality, line-by-line cost estimates produced by multiple contractors at no cost to the homeowner. Some homeowners are wont to dismiss any cost estimate where the total cost exceeds whatever number they have in their head for the total project cost (engineers, this means you.)

In the case of a cost-plus contract, you're going to incur the actual costs and the risk is yours and not the contractor's. If you have a fixed-price contract, the contractor will hit you with change orders at every turn in an attempt to make up for oversights in estimating, and to achieve their target profit on the job.

Good project outcomes are the product of good processes. Begin with a set of professionally-produced plans that clearly define the scope of the project--including existing and new conditions. Do some investigative work to clearly identify the existing conditions. Is there plumbing in that wall that will need to be relocated before the wall can be removed? Is there fill material where the new footings need to go? What size beam do we need? Do we need a bigger electrical service panel? Use the plans and on-site investigative work as the basis for developing a high quality, line-item estimate of the costs to construct the project. Be willing to pay a contractor to produce the estimate and be willing to pay--under any contract type-- the real world cost plus a reasonable overhead and profit for the contractor. Finally, be patient. Be willing to wait in line for a contractor who's the right fit for your project. The ones that do it well will have a backlog.

“Good project outcomes are the product of good processes.” This should be everyone’s mantra. Good processes are the foundation. Planning/aka design, is the concrete foundation for good processes.

I interviewed architects, and selected one, who include in their work defining the scope of work and contract development phase. She went back and forth with our contractor to get bids on various elements of the job so I knew the cost impact of different choices I was considering. It was incredibly helpful. In the end, we created a scope of work with a price we knew we could afford and had a little room for changes too.

For each change we have considered, the contractor let us know how much it would cost. The cost has been for labor and materials and there is no upcharge for creating a "change order". Each change we made has cost about $1,000 - $3,000 more. Examples - old drain pipe was cracked so it and the riser needed to be replaced. We decided to widen a doorway which involved a new door, door frame, and moving some electric.

I was nervous at first because there was no line by line or room by room breakdown of costs on the contract. But I started this discussion on Houzz and got some good education that reassured me that was standard and fine:Should Estimate Include Breakdown of Costs This contractor has not nickled and dimed me and when I see how many materials and how much labor is involved in this project, I actually feel like it was an appropriate number.

They were very clear about how payment would happen. A percentage of the total cost was due at various stages of the job. So 20% was due when electric and plumbing rough-ins were complete. When the electric rough in was complete but the pluming rough-in was not, they invoiced me for 10% of the total, which covered the electric rough. Two weeks later when the plumbing was finished, they invoiced me the other 10%.

I have worked with a ton of contractors and this has been the smoothest and best experience so far. It took about two months to decide the entire scope of work and final number for the contract. It was good to not rush this phase of the project.

I wonder what percentage of fixed-price contracts invoke the escalation clause.

...

For this project, I will have no less than $250k in cash ready for immediate access.

So it sounds like in my situation, a Fixed Price contract is probably the way to go.

Mike, the reality is that if you want this addition you need to fork over some cash. You need a design to get a budget. You will need to pay for that. It’s your starting point.

@res2architect

I will hire an architect to design the addition based on drawings I have already done and specs I have already written up (both of which I continue to hone).

I met a contractor this past Friday at a new build he's doing right down the road from me. His work is impeccable and I really liked him. He recommended a Fixed Price contract, saying that in his experience, Cost Plus turns into a shouting match 9 out of 10 times.

This project is simple enough that I don't foresee much in the way of nasty surprises or scope creep. I'm adding an 18' x 18' room to a 4-year-old stick-built construction, not renovating a 200-year-old farmhouse.

Of course, I could be wrong...

Time will tell.

ETA: the contractor took my plans and documents and will be giving me an OPC this week.

"...I will hire an architect to design the addition based on drawings I have already done and specs I have already written up (both of which I continue to hone)..."

This is exactly the wrong approach for a residential project, unless you have spent the last 20 years successfully designing homes which met budget and were built.

And you are considering using a contractor you met last Friday.

I really wish you good luck...

It's an 18' x 18' room with a cathedral ceiling and some windows that will be designed and built to look like it was part of the original house. It's just an empty room. There's not much, if any, room for compromises. There's no mini bar, built-ins, mahogany flooring, crazy lighting, crazy roof lines, etc. It's an empty box.

As far as budget goes, there is no budget. But I'm not going to allow myself to be taken for a ride into the stratosphere.

The contractor I met this past Friday was nice enough to work up ballpark pricing for me based on my prelims. That doesn't mean he's guaranteed to get the job.

Reread your entire other thread and the valuable advice provided. Good luck

@HU-881088974

Have you read my content in this thread?

1. I have a preliminary design and specs

2. I'm going to hire an architect

3. Fixed Price is apparently offered in this area

4. The reason I'm here in the first place is to (hopefully) ultimately prevent myself from being fleeced

Literally everything you said is wrong.

And where exactly did the "unscrupulous, and unlicensed contractor" come from?