Fixed-Price vs. Cost-Plus Contracts: Which Saves You Money—and What Lenders Prefer

You’re about to sign a construction contract and everyone has an opinion: Go fixed-price to “lock it in!” No, pick cost-plus to “stay flexible!” I’ve managed, bid, and value-engineered hundreds of residential projects, and I’ve seen both types save money—and both go sideways. The smartest choice isn’t a slogan; it’s matching the contract to your specific project, your tolerance for risk, your builder’s strengths, and yes, what your lender is willing to fund. Let’s walk through where each shines, the traps to avoid, and exactly how banks look at both.

Quick definitions (without the jargon)

Let’s pin down the language so we’re on the same page.

• Fixed-price (lump sum): The builder agrees to deliver the work for one set price based on a defined scope and specs. You pay that price unless you change the scope, there’s a pre-agreed escalation clause, or specific allowances vary.

• Cost-plus: You reimburse actual project costs plus a builder’s fee. There are a few flavors:
• Cost-plus percentage: You pay actual costs plus a percentage fee (e.g., 15%). Simple but can reward higher spending.
• Cost-plus fixed fee: You pay actual costs plus a fixed fee (e.g., $120,000). Better alignment on savings.
• Cost-plus with GMP (Guaranteed Maximum Price): Your costs plus the fee are capped at a maximum, barring approved change orders. This is the most lender-friendly cost-plus version.
• Time and materials (T&M) with a not-to-exceed (NTE): Used on small scopes or unknowns. You pay hourly rates and materials up to a cap.

• Allowances: Placeholder amounts for items you haven’t finalized (e.g., “tile material allowance $6/sf”). These can blow budgets if set unrealistically low.

• General conditions: The project overhead—supervision, site facilities, dumpsters, temp power—often 6–12% of hard costs.

• Contingency: The “stuff happens” bucket. On custom homes, a healthy owner contingency is 5–10% (lenders often require it).

My rule of thumb: Fixed-price works best when the scope is crystal clear and lead times are under control. Cost-plus (ideally with a GMP) works best when design is evolving, selections are fluid, or market volatility makes fixed prices unreliable—provided you have tight cost controls.

Who carries the risk—and when each saves you money

Every contract is a way of distributing risk. Here’s how it usually shakes out:

• Fixed-price places price risk on the builder. If they mis-estimate, that’s on them. If you change something, that’s on you via a change order.
• Cost-plus places price risk on you (to a degree), but you gain transparency and flexibility. With a GMP, you cap the overall risk.

Now, where the money often shakes out:

• Fixed-price can save you money when:
• The design is complete and well-documented with minimal allowances.
• The site is straightforward (no gnarly soils or complex utilities).
• The builder has strong purchasing power and can lock pricing with subs.
• You’re disciplined about scope changes.

• Cost-plus can save you money when:
• You’re willing to explore options, value-engineering, or phased purchasing.
• Specifications aren’t fully settled, and you want the freedom to adjust.
• Markets are volatile (e.g., lumber swings) and fixed bids carry large risk premiums.
• You use cost-plus with a fixed fee or GMP, and you actually manage to the budget with open-book accounting.

What I’ve seen: On well-documented projects, fixed-price bids are often 3–8% lower than the “same” project done cost-plus without a tight cost-control culture. But on evolving custom builds with engaged owners, cost-plus with GMP and shared savings tends to come out ahead—especially if you catch value-engineering opportunities early (think $20k–$50k in structural, mechanical, or finish substitutions with minimal impact on performance or aesthetics).

What lenders prefer (and why)

Banks and construction-to-perm lenders fund unfinished work. Predictability is their love language. Here’s how they typically see it:

• They like:
• Fixed-price contracts with detailed budgets, specs, and schedules.
• Cost-plus with GMP, documented fee, line-item budget, and a written contingency plan.
• Open-book accounting, draw transparency, and builder capacity.

• They’re wary of:
• Cost-plus percentage with no cap (GMP) and vague scopes.
• Unrealistic allowances (>15% of the budget sitting in allowances is a red flag).
• Builders with thin financials or limited residential track record.
• Owners who can’t show a contingency reserve (5–10% minimum, often 10–15% on complex builds).

What your lender will likely require:

• Signed construction contract (fixed-price or cost-plus with GMP preferred)
• Detailed line-item budget (hard costs broken down with allowances listed)
• Plans and specs (the exact version used for the bid/pricing)
• Builder’s risk insurance, general liability coverage, and worker’s comp proof
• Builder credentials (license, W-9, references, maybe a balance sheet)
• Inspection and draw process agreement
• Lien waiver protocols
• Title updates with each draw
• Down payment/equity proof (often 10–25% of project cost)
• Interest reserve (funded from loan or cash)

On cost-plus jobs, lenders often: cap the builder’s fee, require a GMP or establish a not-to-exceed “loan budget,” require owner contingency reserves, and mandate open-book draws with vendor invoices. They may also insist on a re-underwrite if costs exceed the GMP or contingency is depleted.

Loan-to-cost and loan-to-value matter. Lenders typically limit construction loans to the lesser of:

• 70–85% of total project cost (land + hard + soft costs)
• 70–80% of appraised “as-completed” value

If your contract type makes the final cost unpredictable, they’re going to tighten the reins or ask you to bring more cash to the table.

The real cost question: Head-to-head scenario math

Let’s run three realistic scenarios on a hypothetical custom home. Same plan, same builder, same target finishes. Numbers are representative of 2,800–3,200 sq. ft. custom homes I see in many markets, but of course your market may differ.

Baseline assumptions:

• Labor and materials, subcontractors, general conditions total: $700,000 (as estimated at preconstruction)
• Builder fee/overhead & profit target: 15%
• Owner contingency: 7% budgeted outside of contract
• Allowances: 8% of hard costs
• Duration: 10 months

Scenario A: Fixed-price (lump sum)

• Builder incorporates risk and fee into a fixed price: $820,000
• The delta from $700k costs to $820k includes: OH&P, risk premium, escalation cushion, general conditions adjustments.
• Mid-project, you upgrade fixtures and add built-ins: +$45,000 via change orders
• Outcome: Total $865,000 (plus financing costs)
• Savings potential: Low-to-moderate. If you’d stayed disciplined, total would’ve stuck near $820k.

Scenario B: Cost-plus fixed fee (open-book), no GMP

• You pay actual costs plus fixed fee of $120,000.
• Early VE (value engineering) reduces structural steel and swaps one custom window group, saving $25,000. Your designer finds a flooring supplier with a $3/sf savings over 2,400 sf: $7,200 saved.
• Materials prices rise mid-project by ~6% overall (lumber/casework/hardware mix effect), adding ~$28,000.
• Actual costs end at $700,000 − $32,200 (VE) + $28,000 (market) + $15,000 (owner tweaks) = $710,800
• Add fee $120,000: $830,800 total
• Outcome: Total $830,800—cheaper than the fixed-price overrun scenario by ~$34k. Risk: If you hadn’t VE’d or had heavier upgrades, you could’ve easily landed higher.

Scenario C: Cost-plus with GMP of $830,000, shared savings 60/40 (Owner/Builder)

• Same VE and market movement.
• Actual cost and fee tally to $810,800.
• GMP = $830,000. Savings vs. GMP = $19,200.
• Shared savings: 60% owner ($11,520) / 40% builder ($7,680).
• Owner pays $818,480 (GMP minus owner share of savings).
• Outcome: $818,480—beats both scenarios above. The shared savings also rewards your builder for coming in under.

What if there’s a shock (e.g., materials surge 12%)?

• Fixed-price without escalation clause: Builder eats it. Might fight you on change orders, may delay, or quality suffers if they try to “make it up.” Worst case: strained relationship, or substitution battles.
• Fixed-price with escalation clause tied to indexes: You receive a documented change order for the delta. Expect +$30k to +$60k on a $700k hard cost base during extreme volatility (we saw lumber spike ~300% at its worst in 2021; most subs now demand 30-day pricing).
• Cost-plus: You absorb the increase transparently. If you pre-purchased long-lead items, you’ll fare better. A GMP caps your total as long as the event isn’t carved out (read your exclusions).

Big takeaway: You save the most when your contract structure matches your behavior. If you’re a chronic upgrader, fixed-price can be a mirage—change orders will erase the “locked” number. If you’re decisive and organized, fixed-price works. If you like options but still want a ceiling, cost-plus with GMP and shared savings is a strong middle ground.

Controlling the scope: The heartbeat of cost control

Contracts don’t control costs; scopes do. Here’s how I set jobs up to stay on track.

• Build a specification book before breaking ground:
• Appliances: model numbers, trim kits, venting, power, and gas specs
• Windows/doors: manufacturer, series, U-values, glass options, colors
• Siding/roofing: exact materials, profiles, underlayments
• HVAC: tonnage, equipment model, zoning, duct material, IAQ package
• Electrical: fixture schedule, dimming, low-voltage, smart home prewire
• Plumbing: fixture schedule, valve specs, trim finishes
• Cabinets: construction type, overlay/inset, interior accessories
• Flooring/tile: SKU or named allowances with square footages
• Paint: brand, sheen, number of colors included
• Landscaping: scope, irrigation, allowances
• Right-size allowances (and make them precise):
• Cabinets: $300–$600 per linear foot (depends heavily on market/custom level)
• Countertops: $60–$120 per sf installed (quartz/quartzite)
• Tile material: $5–$15 per sf material; installed with labor $14–$30 per sf
• Plumbing fixtures: $2,500–$6,000 per full bath suite standard to mid-high
• Lighting: $12–$25 per sf total electrical allowance (all-in fixture + labor benchmark)
• Windows: $600–$1,500 per unit average for vinyl to mid-range aluminum clad (custom shapes/multiples skew this)
• Flooring: $4–$15 per sf material typical; labor adds $2–$6
• Site work wildcards: rock removal, unsuitable soils, water table mitigation; add a separate site contingency of 5–10%
• Quantify everything:
• Don’t allow “tile allowance $10,000.” Write “2,100 sf tile at $10/sf material; 3 shower niches; linear drain in primary.”
• Put duration and lead times in line with selections. If your special tile has 14-week lead time, lock that submittal before framing.
• Freeze dates:
• Lock structural components before permit.
• Lock windows/doors before foundation pour (yes, really—rough openings matter).
• Lock cabinets and tile before rough-in.
• Schedule a finish freeze meeting; anything changed after that triggers a change order.

When allowances are vague, fixed-price contracts blow up in change orders, and cost-plus jobs drift. Get specific.

Common mistakes I see (and how to dodge them)

• Picking the lowest fixed bid without reading exclusions
• Many contractors “win” by excluding site utilities, driveway, or expensive underlayments. Your cheapest bid can become the most expensive once exclusions hit.
• Fix: Demand a scope matrix. Ask, “Who carries what?” across all bids.

• Starting construction with 30% of selections undecided
• That’s how allowance traps happen.
• Fix: Preconstruction services with your builder and designer to finalize specs. Fee well spent.

• Cost-plus with no audit rights or open-book standards
• You need invoice-level transparency and a ledger of construction costs.
• Fix: Contract should allow you (and lender) to review third-party invoices and payroll records related to your job.

• Misunderstanding change order markups
• 10–20% markup on change orders is common. Clarify labor rates, equipment rates, and markups on credits too.
• Fix: Cap markups in the contract. Example: “Change orders at 10% OH&P, credits at full value less 5% admin.”

• Ignoring price escalation language
• If material markets are hot, your fixed price may include a hefty risk premium, or conversely, your builder might add a broad escalation clause.
• Fix: Use index-based triggers (e.g., Producer Price Index for lumber or steel), require documentation, and pre-purchase critical materials where possible.

• Underestimating general conditions
• Longer durations = more money for supervision, rentals, and site costs.
• Fix: Align schedule with reality. Every extra month can add 0.5–1.0% in carrying general conditions.

• Paying subs or suppliers directly
• This undermines Lien Waivers, warranty liability, and lender draw workflows.
• Fix: All payments flow through the builder per the contract. Period.

How to negotiate a smarter contract (practical clauses you can use)

• Build the fee structure around your priorities:
• Cost-plus with fixed fee or cost-plus with GMP often aligns incentives better than a pure percentage fee.
• Consider a sliding fee (e.g., 12% on first $500k, 10% thereafter) for larger projects.

• Add shared savings:
• If the builder brings the job in under GMP, share the savings (e.g., 60% owner / 40% builder). It motivates VE without starving quality.

• Nail down change order language:
• Require written approvals before proceeding.
• Cap markup on change orders (10–15% typical; some market areas tolerate 20%).
• For large changes, switch to a unit-price schedule or T&M NTE where appropriate.

• Define allowances with quantities and unit costs:
• Write “650 sf hardwood at $8/sf material; install $4/sf; base shoe included.” Not “Wood floor $8,000.”

• Use an escalation clause you can live with:
• Example: “If Producer Price Index (PPI) for softwood lumber rises more than 8% from bid date to purchase order, owner agrees to pay documented difference on lumber package only.”
• Tie escalation to specific materials and documentation, not a blanket clause.

• Retainage and lien waivers:
• Retainage of 5–10% held until substantial completion protects you.
• Require conditional lien waivers with each draw and unconditional waivers upon payment.

• Right to audit:
• For cost-plus, include: “Owner and lender may audit job cost records, including subcontractor invoices and payroll, upon reasonable notice.”

• Stored materials:
• Allow payment for materials stored offsite only with proof of ownership, insurance, and bonded storage.

• Warranty:
• Spell out workmanship (1 year), systems (2 years), and structural (10 years) if offered; local rules vary.

• Schedule buffers and liquidated damages:
• LDs are rare in residential but a completion incentive (e.g., $5,000 bonus for finishing before X date) can help. Only use if delays are builder-controlled and pervasive.

When to pick fixed-price vs. cost-plus (decision guide)

Choose fixed-price if:

• Design is 90–100% complete.
• You have strong plans/specs and a willing builder who can lock sub pricing.
• You want cost certainty more than finish flexibility.
• You’re unlikely to make significant changes midstream.
• Your lender strongly prefers fixed-price and your timeline is tight.

Choose cost-plus (preferably with GMP) if:

• You still need to finalize design details or want to explore options during construction.
• You value transparency and open-book collaboration.
• You trust your builder’s accounting and project management systems.
• You’re building on a complex site or navigating unusual conditions.
• You want shared savings incentives and are comfortable managing to a budget.

A useful hybrid: Target price with GMP and shared savings. You set a target budget, agree on a GMP cap, and split savings if the builder beats the target. This keeps everyone aimed at the same outcome.

Working with your lender step-by-step

1) Pre-approval and budget alignment

• Get pre-approved for a realistic range based on income, credit, and assets.
• Factor land equity, soft costs (design, engineering, permits), and a 5–10% contingency.
• Ask your lender upfront: “Do you fund cost-plus with GMP?” “What fee caps do you require?” “What contingency do you require?”

2) Builder selection and contract type

• Share your lender’s requirements with candidates before finalizing a contract.
• Choose a builder experienced with lender draws—ask for a sample draw package and monthly cost report.

3) Documentation package

• Submit: signed contract, line-item budget, plans/specs, builder insurance certificates, schedule, and builder credentials. For cost-plus: fee structure, GMP (if any), audit rights, and allowance detail.

4) Appraisal and underwriting

• Appraisal is “subject to plans and specs.” If your finishes are premium, the spec book must reflect that to get proper valuation.
• Lender sets loan amount based on lower of loan-to-cost or loan-to-value.

5) Title and permits

• Title updates with each draw keep liens in check.
• Provide permits before the first major draw.

6) Draw process

• Expect monthly draws based on percentage complete.
• An inspector confirms work in place; you or the builder submit lien waivers; lender releases funds typically in 3–7 business days after approval.
• Retainage may be held until substantial completion (5–10%).

7) Change orders and overages

• For fixed-price: change orders adjust the budget, appraised value may or may not change.
• For cost-plus: actuals flow through. If you exceed GMP or contingency, the lender may require more cash or re-underwrite the loan.
• Avoid stacking large changes late in the job—lenders dislike budget whiplash.

8) Closeout and conversion to permanent loan

• Punch list, final lien waivers, certificates of occupancy, and final inspection.
• Lender converts your construction loan to the permanent mortgage per your initial CTP agreement.

Tips to keep your lender happy:

• Stay ahead of draws; don’t submit late Friday and expect funds Monday.
• Keep allowances and change orders documented with signed approvals.
• Don’t pay anyone outside the draw process.
• Maintain your contingency and notify the lender early if you’re dipping below 3–5% remaining.

Red flags from a lender’s perspective

• Cost-plus without GMP and a fee over 18–20% on a large project.
• Over 15% of your budget in undefined allowances.
• An eight-month schedule on a 4,000 sf custom—unrealistic timeframes indicate poor planning.
• Missing insurance certificates or expired coverage.
• Builders unwilling to share books on a cost-plus job.
• Owner’s equity not injected first (most lenders require your cash to go in before theirs).

The fastest way to “no”? Submit a vague scope with a pure cost-plus percentage contract and expect the bank to underwrite it as if it were fixed. Doesn’t happen.

Regional and legal notes (without getting into legal advice)

• Many builders use AIA forms (A102, A103, A104) or their own templates. The key is clarity—fee basis, inclusions/exclusions, change orders, escalation, and audit rights.
• Mechanic’s lien laws vary by state. Expect to manage preliminary notices and require waivers at every draw.
• Some states have consumer protection rules for home improvement contracts (e.g., disclosures, right to cancel). Ask your attorney to review before signing.
• Performance and payment bonds are rare in residential but sometimes requested on large custom builds; bonding increases cost but can comfort lenders.

Case studies from the field

Case 1: Fixed-price that stayed fixed (because the owner behaved)

• 2,600 sf spec-level custom with a few upgrades.
• Fully designed, complete specs, fewer than 5% allowances by value.
• Builder locked sub pricing within 30 days of contract.
• One minor change order: $3,800 for gas stub-outs to a future grill and fire pit.
• Finished on time, on budget. Owner saved ~4–5% compared to a cost-plus fee approach due to the builder’s risk premium being modest in a stable materials market.

What made it work: early decisions, realistic allowances, and a builder who bought out the project quickly.

Case 2: Cost-plus percentage that ballooned

• 3,400 sf high-end custom with heavy selections.
• Contract was cost-plus 15% with no GMP and vague allowances.
• Owner changed tile in three baths mid-framing, revised cabinet layouts twice, added beams and a built-in bunk room.
• Project finished 14% over the original “budget”, partly due to owner-driven changes, partly due to material escalations and general conditions from schedule creep.

What would’ve helped: a GMP, a finish freeze meeting, and a shared savings structure, plus better allowances.

Case 3: Cost-plus with GMP and shared savings—came in under

• 3,000 sf modern farmhouse. GMP set at $840,000 with a $115,000 fixed fee built into that number.
• Early VE of $28,000 through truss optimization and standardizing window sizes.
• Builder pre-purchased windows and roofing to avoid forecasted price increases; owner used designer’s direct-vendor pricing for tile and plumbing within allowances.
• Actual cost landed at $810,000, savings $30,000 below GMP. Split 60/40: Owner saved $18,000; builder received $12,000 on top of fee.
• Bank loved the GMP and the consistent draw package; no re-underwriting needed.

Why it worked: collaborative VE, early procurement, and a win-win savings split.

Budget and timeline cheat sheet

Typical cost distribution on a custom home (very rough averages):

• Site work: 10–20%
• Foundation/structure: 8–12%
• Framing and shell: 15–20%
• Windows/doors: 5–10%
• MEP (mechanical, electrical, plumbing): 15–20%
• Insulation/drywall: 6–10%
• Finishes (flooring, tile, cabinets, counters, paint): 25–35%
• Landscaping/exterior improvements: 2–8%
• General conditions: 6–12%
• Builder OH&P: 12–20% (built into fixed price or explicit in cost-plus)

Timeframes:

• Design and permitting: 2–6 months (depends heavily on jurisdiction and HOA)
• Build: 8–14 months for 2,500–3,500 sf custom in most markets
• Inspections and closeout: 2–6 weeks

Contingency suggestions:

• Owner contingency: 5–10%
• Site contingency (if soils unknown): 5–10%
• Builder contingency (inside a GMP): 2–5% typically

Real-world volatility recap:

• Lumber pricing spiked dramatically in 2021 (several hundred percent above pre-2020 norms at the peak), normalized some in 2022–2023 but still shows seasonality.
• Electrical gear and HVAC lead times extended significantly during supply chain crunches; long-lead items still require early ordering in some markets.
• Moral: if lead times are long, both fixed and cost-plus benefit from early procurement clauses.

Practical selection and preconstruction checklist

• Interview at least two builders who’ve done your house type and finish level.
• Ask for:
• Two recent client references and one in-progress job you can walk.
• A sample budget and draw report (especially for cost-plus).
• A draft schedule with procurement milestones.
• Verify:
• Insurance limits, state license, and any past claims or liens.
• Accounting system capability (QuickBooks with job costing minimum; dedicated project management software preferred).
• Contract type:
• Fixed-price if scope is tight; cost-plus with GMP if you need flexibility and lender approval.
• Insist on a shared savings clause for GMP contracts.
• Cap change order markups; define unit prices where useful (e.g., excavation per cubic yard).
• Scoping and allowances:
• Drive down allowances below 10% of hard costs where possible; quantify every allowance.
• Lock selections that drive structure and rough-in before framing.
• Risk and escalation:
• Decide whether to pre-purchase windows, roofing, key finishes early.
• Include a narrow escalation clause only where necessary and index-linked.
• Lender coordination:
• Confirm whether draws are monthly, retainage rates, and required waivers.
• Share the contract with the lender before signing to avoid surprises.
• Communication plan:
• Weekly standing meetings with agendas and action items.
• Live budget-to-actual updates shared monthly.

How to keep cost-plus honest (and money-saving)

I love cost-plus for collaboration, but it needs guardrails. Put these in place:

• Open-book accounting with monthly cost reports:
• Show budget vs. committed vs. actual vs. forecast to complete.
• Include copies of all subcontracts and major purchase orders.
• Purchase rigor:
• Competitive bids for subs above a threshold (e.g., $20,000).
• No self-performed work without pre-agreed rates and caps.
• Fee clarity:
• Fee excludes general conditions, or if it includes them, list exactly what’s included.
• Monthly owner sign-off:
• A formal “cost-to-complete” review so you don’t discover overages at 80% completion.
• Preconstruction plan:
• Pay the builder for preconstruction services to develop a detailed work plan, schedule, and early VE list before you sign the main contract.

With those rules, cost-plus becomes a budget tool, not an open spigot.

Working examples of escalation and VE that actually save money

Escalation, narrowly drawn:

• Materials covered: structural lumber, roofing, electrical switchgear.
• Trigger: If selected PPI index increases >7% from bid date to purchase order date.
• Proof: Supplier quotes and index documentation.
• Not covered: Labor rates, unless union agreements or a documented market index changes beyond 5%.

Value engineering that maintains performance:

• Structural: Optimize beam sizes by switching to engineered lumber or rearranging point loads; $5k–$15k savings on many two-story customs.
• Windows: Standardize sizes to reduce custom units; save $3k–$10k with minimal visual impact.
• HVAC: Right-size equipment via Manual J/S/D; oversizing is rampant and wastes money.
• Tile: Use stone-look porcelain in secondary spaces; reserve natural stone for focal points.
• Cabinet interiors: Choose fewer specialty pull-outs; add later if you miss them.

The right time to VE is before the contract or early in framing. VE after finishes are ordered is just pain.

FAQ quick hits

• Will a fixed-price always protect me from overruns?
• Only if you don’t change the scope and the contract doesn’t have broad escalation carve-outs. Read the exclusions; many “fixed” numbers are fixed until they aren’t.

• Is cost-plus a blank check?
• Not if you have a fixed fee or GMP, open-book accounting, and a monthly budget cadence. It’s flexible, not careless.

• What builder fee is normal?
• On custom homes, total OH&P often falls between 12–20%. For pure fee structures, I see 10–18% of cost or a fixed fee sized to duration and complexity.

• Do banks fund cost-plus?
• Yes, many do—especially with a GMP and strict documentation. Some lenders prefer fixed-price but will accept cost-plus if you hit their conditions.

• How much contingency should I set aside?
• 5–10% is common; go 10%+ if the site is unknown or the design is complex.

• Who buys long-lead items?
• Typically the builder via purchase order. If you want to purchase directly, coordinate carefully; lenders may not fund owner-supplied materials and warranty/liability gets sticky.

A simple playbook for choosing—and winning—with either contract

1) Diagnose your project and your personality.

• Are you decisive with selections? Fixed-price is attractive.
• Do you want to explore options mid-build? Cost-plus with GMP fits.

2) Bring your lender into the conversation early.

• Ask them which forms they accept and what they’ll require for draws.
• Align on contingency and fee caps before finalizing your contract.

3) Invest in preconstruction.

• Pay your builder and designer to finish selections, finalize specs, and VE intelligently.
• Reduce allowances below 10% of hard costs.

4) If fixed-price, bulletproof the scope.

• Write down exactly what’s included—and excluded.
• Clarify change order markup, escalation (if any), and allowance reconciliation.

5) If cost-plus, build transparency in.

• Use a fixed fee or GMP, shared savings, open-book accounting, and audit rights.
• Require a monthly budget-to-forecast review.

6) Manage the build like a business.

• Weekly meetings, monthly financial reports, selection freeze dates, and no side deals.
• Protect lien releases and insurance certificates like your closing depends on it—because it does.

7) Lock in wins early.

• Pre-purchase long-lead items after lender approval.
• Approve submittals quickly. Slow approvals equal schedule creep equals cost.

8) Resist the late-stage splurge.

• The last 10% of the project can add 20% to your stress and cost if you keep tweaking. Freeze the finish plan and get to the finish line.

Key takeaways you can act on this week

• If your plans and selections are 90%+ complete, solicit fixed-price bids from two qualified builders who buy out quickly. Compare scope matrices carefully, not just totals.
• If your design is evolving—or markets are jumpy—structure a cost-plus with GMP, fixed fee, and shared savings. Set clear rules: open-book, monthly cost reports, and defined change order markups.
• Ask your lender early about their preferences and required documents. Some banks quietly prefer fixed-price or require a GMP—better to know before you fall in love with a contract form.
• Get specific about allowances. Quantities + unit costs = fewer surprises.
• Build in contingencies. Owner: 5–10%. Site: another 5–10% if soils/utilities are unclear. Budget this into your loan ask.
• Use your contract to drive behavior: schedule milestones, finish freeze dates, VE deadlines, and escalation limits.
• Incentivize the outcome you want. Shared savings and a fixed fee align teams to deliver value, not volume.

If you match the contract to your build style, lock your scope with ruthless clarity, and keep your lender looped in, you’ll put real dollars back in your pocket—no matter which contract type you choose.