How Much Should My Project Cost? Fixed VS Cost Plus Projects Calgary
For anyone who has ever hired a professional to complete a much needed renovation or finally building their new dream home, this question will come up with your contractor – Fixed Price or Cost Plus? Maybe you have gone into things already knowing what you prefer, or maybe you haven’t the faintest idea which way to go. Both methods bring their own positives and negatives to the budgeting and construction process; depending on who you talk to, you will likely hear that one is better than the other.
Before you decide between the two you need to ask yourself a couple things, this will help narrow down which approach is best for you:
First, how involved do you want to be in the day to day operations of the construction of your project? In a fixed price scenario, you would see no invoices as it all flows through the builder and is included in the fixed fee you paid. The only responsibility you have is making selections and approving the selection costing (which will vary based on your taste). In a cost-plus scenario you will receive monthly packages of all invoices received that month by the contractor/builder along with a summary breakdown showing the builders agreed-to Management Fee. Both can be done effectively and this is generally driven by the client and the level of involvement they want.
Second, how fixed is your budget and how many surprise fees have you allowed for in the funds you have set aside for your project? In the case of a fixed price contract, the price you agree to in the legal contract is the price you pay. The only cost over-runs will come from finish selections you make that deviate from the original specification. If material costs go up, or something is missed in the budget, the builder who agreed to the fixed price is obligated to cover that cost. In a cost-plus scenario, if the budget that is set is not adequate for what is required, or doesn’t account for known items that will arise during construction, these costs become the responsibility of the client/homeowner and are in addition to the contract price you agreed to.
There are potential downsides to both as well depending on the level of detail and experience in the contractor/builder you are working with. In a fixed price scenario, since the contractor/builder is taking on the risk of material cost fluctuations, market and labor conditions, and potentially unknown items that may arise – there is going to be a contingency built into that price. This could make the price seem more expensive and not as competitive; you may feel that you’re paying a premium or more than you should.
On the flip-side a cost plus project in some cases can be under-bid (intentional or otherwise) which gives an appealing low number and wins the project. The contractor is protected in this scenario as the client pays what is invoiced, you however are left paying potentially more than you had in your budget. This inevitably leads to unanticipated cost over-runs. Additionally, the contractor makes their percentage on what is finally paid, so some may lack incentive to ensure they are getting best value for your money.
The key as with all construction projects is proper planning, budgeting, and execution. If your planning and budgeting is thorough and correct, and the project is built in a timely and efficient manner - then a fixed price or cost-plus scenario will ultimately get you the same end result and price. However with the wide range of experience, thoroughness, and attentiveness of the builders and contractors in todays market – there tends to be a WIDE variety in prices you receive for your job. This leads to a good future topic, evaluating your quotes!
In both cases an unscrupulous contractor can take advantage of the situation so at the end of the day you genuinely should trust who you are working with. At Onyx Custom Homes, we have worked under both costing structures and we have encountered clients that prefer both methods. We tend to encourage Fixed Price as it generally leads to a more enjoyable and collaborative construction process and fosters better planning in advance, but we are comfortable with both equally and leave it up to the client to decide what feels best for them.
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