What No One tells you About Fixed-Price & Cost-Plus Contract?

There is something that no one would tell you at the time you will be getting your home built and that is- the difference between the cost-plus and fixed-price contract. The fixed-price contract refers to the contract that accompanies paying the actual cost of building the home, including all the labour and material, while cost-price contract adds a fee for the builder to these costs made. This fee is for the builder’s management and overhead at the time of building your home.

Here, we have further elaborated cost-price contract and how it differs from the fixed-price one in terms of accounting:

Accounting in case of cost-price contract..

Now, that you understood the difference of cost-price and fixed-price contract, you should be aware of its accounting also. The fee of the builder accompanied in the case of cost-price contract can either be a lump sum, i.e. a flat fee that is a single amount of fixed charges for the service the builder will provide or it can be a percentage of the total costs made.

Until the final accounting, it’s next to impossible to know the exact possible expenses to be made while building the home, but a reliable builder will certainly give you an idea of the accurate cost estimate that it will take.

How Cost-plus Contract is More Advantageous…

You must be thinking about which one you should be opting out of the both-- cost-price or fixed-price contract. It is found that cost-price contract is rather beneficial when building larger, custom homes, in case of which there are potential changes while the entire process of home-building since your contractor will have a detailed cost approximation much before the construction of your home will begin.

Further…

In this type of contract you will have a monthly report of the progress of the building of your home and the estimated cost to finish the home-building. Moreover, you will be getting the report of any changes to the total cost and the ongoing estimated total cost and that is highly required in case you don’t want to get surprised of the total cost at the end of the project of home-building.

In case you find your builder to be proficient and capable of accomplishing the task of building your home as well as find yourself comfortable of knowing your end cost on a monthly basis and that too based upon the choices you’ve made,  then trusting a builder for cost-price contract does certainly make sense. Though, both cost-price and fixed-price are favourably used in case of building new custom homes, still, you can opt for the best one as per your own convenience.