Explore the differences between Fixed Price and Cost Plus projects to determine which structure is best for you within Ressio
When planning a residential construction project—whether it’s a custom home, major renovation, or home addition—choosing the right type of contract is crucial for both budgeting and project management. The two most common contract types are Fixed Price and Cost Plus. Here's a breakdown of how they differ and what each means for homeowners.
🔒 Fixed Price Contracts (Lump Sum)
A Fixed Price contract outlines a single, agreed-upon total price for the entire scope of work. This price is determined before construction begins and is based on detailed project plans and specifications.
Key Features:
💰 Set Budget: The total project cost is agreed upon up front.
📊 Predictability: Ideal for homeowners who want cost certainty.
⚠️ Limited Flexibility: Changes to scope (change orders) will likely increase the overall cost.
🧱 Contractor Responsibility: The contractor absorbs cost overruns unless they result from homeowner changes or unforeseen conditions.
Pros:
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Easier to budget and finance.
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Less risk of cost escalation.
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Encourages efficient project management by the builder.
Cons:
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Less flexibility to make changes mid-project.
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May include a built-in contingency to protect the contractor, increasing the initial price.
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Requires very detailed plans and selections before construction begins.
🧾 Cost Plus Contracts (Time and Materials, Open Book)
A Cost Plus contract bills the homeowner for the actual cost of labor, materials, and subcontractors, plus a fixed fee or percentage for the contractor’s profit and overhead.
Key Features:
🔍 Transparent Billing: Homeowners can see what everything actually costs.
🔄 Flexibility: Easier to make changes or adjustments during the project.
⚖️ Shared Risk: Homeowners assume more risk for cost overruns or inefficiencies.
Pros:
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Greater flexibility to adjust scope, materials, or finishes.
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Ideal for projects where final details may evolve during construction.
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Can be more cost-effective in projects with many unknowns.
Cons:
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Less budget certainty.
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Requires careful oversight of expenses and documentation.
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Can lead to higher total cost if not managed closely.
Which One Is Right for You?
| Criteria | Fixed Price | Cost Plus |
|---|---|---|
| Budget Certainty | ✅ High | ⚠️ Variable |
| Flexibility | ⚠️ Limited | ✅ High |
| Transparency | ⚠️ Limited | ✅ High |
| Best For | Projects with well-defined scope and selections | Projects with evolving scope or design |
How does this work in Ressio?
In Ressio projects are set as either Fixed Price or Cost Plus when they are created.
Note: You can adjust the cost structure of a project after creation but its recommended that you only do that prior to sending a proposal or invoice to your client
Tip: If you want to be able to sync your project Fixed Price or Cost Plus to Quickbooks Online you will need to select the cost code budget organization as well.
The primary effect cost structure has on a project is how invoicing occurs:
Cost Plus
- By Amount: Manually create line items and $ values to invoice the client
- From Actuals (CP Only): Create invoices from outstanding bills and expenses including time
- From Changes: Invoice directly from changes to the original estimate (Change Orders and Selections)
Fixed Price
- By Amount: Manually create line items and $ values to invoice the client
- From Changes: Invoice directly from changes to the original estimate (Change Orders and Selections)
- By Percent (Progress Invoice) (FP ONLY): Invoice a % of the total client price of one or multiple cost lines
When setting up a Fixed Price project other decisions need to be made about allowances and selection markup. Setting up Fixed Price Projects in Ressio
Final Thoughts
Both contract types have their place in residential construction. If you have a clear vision, detailed plans, and want cost predictability, a Fixed Price contract may be the best fit. If your project is more complex, custom, or evolving, a Cost Plus contract can offer the flexibility you need—but with more active involvement in cost tracking.
Always consult with your contractor and, if needed, a construction attorney to understand the terms and implications before signing any agreement.