Cost-Plus vs Fixed-Price Renovation Contracts: Which One, and How to Write It
Every renovation contract answers one question first: who pays when the job costs more than expected? A fixed price says you do. Cost-plus says the client does. Everything else in the contract follows from that answer, and most of the arguments at the end of a job come from a contract that never quite gave it.
The two forms, side by side
| Fixed price (lump sum) | Cost-plus (cost plus fee) | |
|---|---|---|
| What the client pays | The agreed price for the agreed scope, adjusted only by change orders | Actual cost of labour, materials and subs, plus your fee |
| Who carries cost risk | You | The client |
| What the client sees | The price and the scope; not your costs | Every receipt and invoice |
| What you earn | Whatever is left after cost — more if you are efficient, less if you are not | The fee, and only the fee |
| When it fits | Scope is settled: drawings, selections, site seen | Scope is open: unknown conditions, moving design, client-managed selections |
| How it goes wrong | Loose scope; unpriced extras; contingency that was never in the number | No cap; no definition of cost; receipts that never arrive; a client who stops trusting the meter |
Fixed price: certainty for them, risk for you
A fixed price is what most homeowners expect and what most renovation estimates are. You price the scope line by line, add contingency for what you cannot see and markup for overhead and profit, and the number on the estimate is the number. If the plumbing rough-in takes a day longer, that is yours. If it takes a day less, so is the saving.
A fixed price works when the scope can be defined tightly enough to price, and it fails in exactly the places where it cannot. The protections are all in the document:
- A scope line by line, with quantities where they matter, so an extra is visibly an extra.
- Allowances for unmade selections, stated as amounts, so the price moves by the difference and nothing else.
- Exclusions written out: permits, design, appliances, anything the client is providing.
- Hidden conditions handled by a clause: what is found behind the wall is priced as a change order before the work proceeds, at stated rates.
- Contingency inside your price, not as a visible line the client negotiates away. Contingency versus markup explains why they are separate numbers.
- A payment schedule: deposit, draws at milestones, balance on completion, holdback where the law requires it.
In Ontario a fixed-price estimate also sits under the Consumer Protection Act's rule that the final price cannot exceed an estimate by more than 10 percent without the client's agreement to a change. Signed change orders are that agreement. Estimate versus quote versus bid covers what the estimate itself commits you to.
Cost-plus: transparency for them, a fee for you
Under cost-plus the client pays what the job actually costs — your labour at stated rates, materials at receipt, subcontractors at their invoices — plus a fee that is your overhead and profit. The fee is a percentage of cost or a fixed amount agreed at the start. Contractors commonly quote residential cost-plus fees in the range of 10 to 20 percent, higher for small or complicated work, and the percentage is worth stating next to what it does and does not cover.
Cost-plus fits when the scope cannot honestly be fixed: a century home where every wall is a question, a design that is still moving while demolition starts, a client who wants to choose finishes late or supply some materials themselves, insurance restoration where the scope is discovered as you go. It is also the structure that lets a good client and a good contractor stop pretending the number is known.
What the contract has to say, because the arguments come from whichever of these is missing:
- What counts as cost. Labour at what hourly rates, for whom; materials at receipt, with or without your supplier discount; subcontractors at invoice; equipment rental; permits; disposal. What does not count: your truck, your phone, your office — those are what the fee is for.
- The fee, as a percentage of which costs, or as a fixed sum, and whether it applies to subcontractors and client-supplied materials.
- Receipts. Every cost is documented and the documents go to the client with each invoice. This is the whole basis of the client's trust, and it is the part contractors without a system fall down on.
- A budget and a reporting rhythm. Cost-plus without a budget is a blank cheque; nobody signs one twice. State the budget the estimate represents, how often the client sees cost against it, and what happens when it is approached.
- How changes are handled. Even on cost-plus, a scope change should be written down and agreed before the work, because the budget moved.
- Billing. An invoice each period with the period's costs itemised, receipts attached and the fee on top; or milestone draws against the budget, reconciled to actual cost at the end.
The hybrid: cost-plus with a guaranteed maximum
A guaranteed maximum price is cost-plus with a cap. The client pays cost plus fee up to the maximum and sees the receipts; anything above the cap is yours. Some contracts share savings below the cap. It offers the client both certainty and transparency, and it is the structure most likely to hurt you, because you have taken on fixed-price risk for a scope that was loose enough to need cost-plus in the first place. Use it only where the scope is nearly settled and the cap includes a contingency you would have carried anyway.
Choosing
- Fixed price when you have drawings, selections and a site visit, and the client wants one number. Most kitchens, bathrooms, basements and decks.
- Cost-plus when the scope is genuinely open, the client understands what they are buying, and you have the discipline to document every cost. Old houses, moving designs, restoration, additions with unknown structure.
- Guaranteed maximum only when the scope is nearly fixed and the cap carries contingency.
Whichever you choose, say it in the first paragraph of the contract in plain words: this is a fixed-price contract for the scope listed, or this is a cost-plus contract; you pay the actual cost of the work plus a fee of X percent, and the estimate is a budget, not a price. Most disputes are about a client who thought they had the other one.
Where Estiquik fits
A fixed-price job is an Estiquik estimate with a payment schedule, signed by the client, with every change afterwards a signed change order that rolls into the revised contract value, and the contract itself drafted from the estimate. A cost-plus job uses the other half of the app: expenses with photographed receipts linked to the job, subcontractor invoices recorded against it, and job costing that shows cost against the budget as you go — the reporting rhythm the contract promised, without a spreadsheet. Either way, progress invoices bill the stages and the holdback.
Questions contractors ask
What is the difference between cost-plus and fixed price?
Under a fixed-price contract you agree a price for a defined scope and keep whatever you save or eat whatever you overrun. Under cost-plus the client pays the actual cost of labour, materials and subcontractors plus your fee — a percentage or a fixed amount — and sees the receipts. Fixed price puts the cost risk on the contractor; cost-plus puts it on the client.
When should a renovation be cost-plus?
When the scope cannot be defined well enough to price: old houses with unknown conditions, design that is still moving, jobs the client wants to shape as they go, restoration and repair after damage. Cost-plus is also the honest structure when a client wants to buy some materials themselves or run selections late.
What is a typical cost-plus fee?
Contractors commonly quote cost-plus fees in the range of 10 to 20 percent of cost on residential work, higher on small or complex jobs, sometimes as a fixed fee instead of a percentage. The fee is your overhead and profit; it is not the same as markup on a fixed-price job, where contingency also sits inside the price.
What is a guaranteed maximum price?
A cost-plus contract with a cap: the client pays cost plus fee up to an agreed maximum, and you absorb anything above it. It gives the client certainty and keeps the transparency of cost-plus, and it is the structure most likely to go wrong if the scope the cap is based on is loose.
Does Ontario's 10 percent estimate rule apply to cost-plus?
Ontario's Consumer Protection Act says a supplier cannot charge more than 10 percent above an estimate unless the consumer agreed to a change. On a cost-plus job the estimate is a budget, not a price, and the contract should say so in plain words — and the client should be agreeing to the actual costs as they are billed. This is not legal advice; have your contract reviewed.
How do I bill each one?
Fixed price: deposit, draws at milestones and completion, holdback where required, with change orders adjusting the contract value. Cost-plus: an invoice each period listing the costs incurred with receipts and the fee on top, or the same milestone draws against a budget with a reconciliation at the end.
Draft the contract from the estimate, and keep every receipt on the job. Fourteen days of Pro, no card; contracts, change orders and job costing are on Pro.
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