Cost-plus vs. fixed-price construction contracts

Cost-plus contracts pay the builder actual cost plus a fee, exposing the buyer to overruns but rewarding transparency. Fixed-price contracts set one number for a defined scope, transferring overrun risk to the builder in exchange for tighter specifications and contingency padding. Cost-plus suits truly custom, evolving designs; fixed-price suits resolved, well-specified projects.

Side by side

Attribute	Cost-plus	Fixed-price
Who absorbs overruns?	Buyer	Builder
Transparency	High (real invoices)	Low (one number)
Spec maturity needed	Can evolve	Must be locked
Allowance use	Standard	Heavy
Risk premium baked in	Low	Higher
Best fit	Bespoke or evolving	Resolved and stable

The takeaway

Choose cost-plus if your design is still evolving and you trust your builder; choose fixed-price if your specification is mature and you want budget certainty.

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