Settling on the contract for any home renovation project is an important part of the process. But does it really matter which kind of contract you sign? At first glance, the different kinds of contracts seem to look pretty much the same. Let's take a look at the two most common types of renovation contracts—and how they differ—so that you can decide which one is the best for you.
Cost-Plus Contracts
This kind of contract is sometimes called a T&M (Time and Money), Cost-Plus, or Open Book contract. A cost-plus contract covers key elements of a renovation project: labor, materials, and builder profit. What it doesn’t cover is any kind of provision for contingencies. Any expenses that arise due to unforeseen work that’s needed or work that exceeds the scope of the contract is passed on to the homeowner. The more complicated the project, the higher the likelihood that these chargers will occur. If the project comes in under budget, the homeowner keeps the difference. If the project exceeds the budget, the homeowner pays.
Some people will make the case that this arrangement eliminates the incentive for the builder/renovator to cut corners. Finishing under budget makes no sense because it is money out of the contractor’s pocket. As the client, you pay only for labor and materials. You also have access to all vendor and trade contractor invoices and employee timesheets. Of course, that means you also have the responsibility to track all of those things if you want to make sure about what you're paying.
Often, cost-plus contracts come into play when the scope of the project is not clearly defined. This puts the burden squarely on you as the homeowner. If you make changes because the project isn’t turning out the way you envisioned it, it’s your responsibility.
Fixed-Price Contracts
With this kind of contract (sometimes referred to as a Lump Sum contract), the contractor will provide you with an estimate that covers labor, materials, profit margin, and a cushion for contingencies. If your contractor exceeds the budget for a foreseeable reason (for example, underestimating a subcontractor’s charge for installing flooring or electrical work) it is the contractor’s responsibility—not the homeowner’s.
Contractors that use fixed-price contracts generally work together with their client and an architect or designer (often these renovators have in-house designers). Together they develop a scope of work that matches the homeowner’s design need with their budget. Additionally, renovators that used the fixed-price approach won’t start work without a set of complete plans that ensure everyone is on the same page. That protects both the renovator and the homeowner.
At Peak Improvements, we are design-build renovation contractors. We believe that gives our clients a better, smoother home renovation experience—including the results you really want along with improved budget control. That's why we work on a fixed-price contract basis. We are involved with you from the very beginning of the process so that we can avoid surprises down the road. The people that design your renovation are part of the same team that actually builds it. That keeps things from slipping through the cracks. Click here for a quick look at how the process works.
Ultimately, the kind of home renovation contract your decide on really depends on the type of renovation company you choose. Peak Improvements is built on fostering lasting relationships and on working with you to create the home of your dreams. A well-planned design (with your input) makes a fixed-price contract make sense because everyone has a clear picture of what needs to happen and when. On top of that, it relieves you (as the homeowner) of having to track a myriad of details to make sure you’re getting the best possible quality at a fair price.
