A fixed-price contract is a bit like ordering a finished piece of furniture from a drawing: you agree on the object and its price, and how the maker gets there is their business.
A cost-plus contract is closer to hiring the workshop with the books open: you see every board and every hour, and you pay for them as they are used.
In a cost-plus construction contract, the owner reimburses the builder’s actual, documented cost of the work and pays a separate fee on top; in a fixed-price contract, the owner pays an agreed sum for an agreed scope, and the builder keeps any savings or absorbs any overrun.
A guaranteed maximum price, or GMP, is a cost-plus contract with a ceiling.
Neither one is safer by default. Each moves risk to a different place, and the right choice depends on how finished your design is when you sign.
What you pay under each model
The American Institute of Architects publishes standard agreements for each arrangement, and its definitions are a useful neutral reference.
In its article on how a guaranteed maximum price contract caps construction costs, AIA Contract Documents describes the fixed-price model as one where the owner pays a set contract amount, subject to approved changes, and payment does not depend on the contractor’s actual costs.
Cost-plus works the other way round. The AIA family has two versions for an owner and a contractor: A103, the cost of the work plus a fee without a maximum price, and A102, the same structure with a guaranteed maximum price.
In both, the bill is built from receipts, timesheets and invoices, and the fee is the builder’s compensation for running the job.
How the fee is set matters as much as the model. A fee set as a percentage of cost rises with every upgrade and every overrun, because it is calculated on them. A fixed fee stays where it is unless the scope changes. Ask which one you are being offered, and how a change order affects it.
| Fixed price | Cost-plus, no cap | Cost-plus with GMP | |
|---|---|---|---|
| What sets the final bill | The contract sum, plus approved changes | Actual allowable costs, plus the fee | Actual allowable costs plus the fee, up to the ceiling |
| Who keeps savings | The builder | The owner | Set by the savings clause |
| Who absorbs an overrun | The builder, unless it comes from a change | The owner | The builder above the cap, unless it comes from an approved change |
| What you see | The price and the scope | Every cost line | Every cost line, against the cap |
| What the price needs first | Complete drawings and selections | A defined scope and a fee | A design developed enough to estimate, with written assumptions |
What a guaranteed maximum price caps, and what it leaves open
A GMP is a ceiling, not a price. AIA’s own advice to owners is not to treat the GMP as the contract price: you pay the actual reimbursable costs, which may come in under it.
The cap is also not frozen. The same guide notes that a GMP is usually agreed before the construction documents are complete, so it rests on assumptions, allowances and contingencies, and it rises or falls when the owner approves changes. A GMP set on a loose design is a ceiling with a lot of doors in it.
Three details in the A102 form are worth knowing even if your builder uses a different contract:
- The schedule of values divides the budget into line items, but those lines are not separate caps. A single line may run over as long as the total stays under the GMP (A102–2017, §12.1.5.2).
- When money moves out of the contingency line into another line, the contractor has to document why (§12.1.5.3).
- If the contract includes a schedule of labor rates, those rates stay fixed for the whole project unless both parties sign a modification (§7.2.5).
Ask what happens to money left under the cap. AIA recommends that every GMP contract say how savings are distributed; if yours is silent, that is a negotiation you have not had yet.
Matching the contract to the project
The pattern is simple: the more you can draw and specify before signing, the better a fixed price serves you. The more that will be decided, discovered or redesigned along the way, the more an open-book arrangement protects both sides from guessing.
| If your project looks like this | The structure that usually fits | Why |
|---|---|---|
| Full drawings, engineering and finish selections done; little left to decide | Fixed price | The builder can price the whole scope, and you get one number to plan around |
| Design mostly done, a few finishes and systems still open | Cost-plus with GMP | You get a ceiling while the open items are priced as allowances |
| An older house where the walls, floor framing or foundation have not been opened | Cost-plus, or fixed price with clear exclusions for what is hidden | Nobody can price rot or undersized framing before seeing it; a fixed price has to either pad for it or exclude it |
| You want to choose materials as the house takes shape | Cost-plus | Each choice is billed at cost instead of being renegotiated as a change order |
| Your budget has a hard limit, set by a lender or by you | Fixed price or GMP | Both put a number in writing that the bill should not cross without your approval |
The choice also depends on how the design team is organized. If you are still deciding whether the architect and the builder should work together from the start, our comparison of design-build and design-bid-build covers how each route reaches a price.
Where each model tends to leak
Fixed price: exclusions, allowances and changes
A fixed price is only as fixed as its scope. The number moves through three doors: work the contract excludes, allowances that turn out too small for the finish you pick, and change orders.
None of these is a trick; they are how a fixed price handles anything not decided at signing. Read the exclusions list as carefully as the price, and compare each allowance with the finish you actually have in mind.
Cost-plus: what counts as a cost
The open-book model leaks through definitions. A102 has one article for costs to be reimbursed and another for costs that are not, and the line between them is where disputes start.
Examples from the 2017 edition: the share of time that supervisors spend off site is something the parties fill in, and bonuses for the contractor’s staff count as a cost of the work only with the owner’s prior approval (§7.2.2.1 and §8.1.2).
Whatever form you sign, ask for the reimbursable list in writing before the first invoice, not after.
Liens: the South Carolina detail behind every invoice
Paying the builder does not always mean everyone on the job has been paid. South Carolina’s mechanics’ lien law gives laborers, subcontractors and suppliers who improve your property a lien right for the value of what they furnished (S.C. Code § 29-5-20).
A claimant has 90 days after last furnishing labor or materials to serve and file the lien statement (§ 29-5-90).
The same chapter limits the total of such liens, where the owner has been notified, to the amount the owner still owes on the contract price (§ 29-5-40).
On a cost-plus job, where the contract price is built from the invoices themselves, that makes lien waivers from the builder and from major suppliers with each payment request a sensible habit. This is general information, not legal advice; a South Carolina construction attorney can tell you how it applies to your contract.
Contract checklist to print
Take this to the table with any builder, whichever model they propose:
- Which AIA form, or which builder form, is this based on, and what was changed from the standard text?
- Is the price a contract sum, a cost-plus estimate, or a guaranteed maximum price?
- For cost-plus: is the fee a fixed amount or a percentage, and does it change when the scope changes?
- Which costs are reimbursable and which are not, listed in the contract itself?
- Are labor rates fixed for the project? Who are the people billed at those rates?
- What assumptions, allowances and contingencies sit inside the price or the cap?
- How are savings under a GMP shared?
- What is excluded, especially behind walls, below floors and in the foundation?
- How is a change requested, priced, approved and signed before the work happens?
- What comes with each payment request: invoices, timesheets, photos, lien waivers?
- When is the final payment released, and what has to be finished first?
For the conversation that comes before the contract, our list of questions to ask a custom home builder covers license, insurance and who will actually be on site.
Reading two proposals that use different models
Builders will not always propose the same structure, and a fixed number next to a cost-plus estimate is not a fair comparison. Line them up on scope first: same drawings, same allowances, same exclusions. Then compare the fixed price with the cost-plus estimate plus its fee, and look at which risks each one leaves with you.
What we publish about our own proposals is the standard to hold any builder to: a detailed written proposal with itemized scope, material allowances clearly disclosed and a timeline; change orders documented before the work; and final payment released only when you are satisfied with the finished home.
Our crews are our own team rather than subcontracted crews, which keeps one company accountable for the work being billed.
If you have drawings, or only a lot and a brief, a Charleston custom home builder can tell you which structure your design is ready for. Talk through your contract options with Domus Built.
