Fixed-Price vs Cost-Plus Contracts: Making the Right Choice for Your Build

The Fixed-Price Advantage

Imagine knowing exactly what your dream home will cost before breaking ground. That’s the essence of a fixed-price contract. At Slate, we’ve seen how this certainty can transform the building experience, allowing our clients to focus on the exciting aspects of their project – like selecting the perfect appliances for their bespoke kitchen or smart tech for home automation.

Fixed-price contracts set a predetermined sum for your entire build, covering everything from foundation to final coat of paint. Think of it as having your architectural journey mapped out with clear financial waypoints. Your builder carries the risk of price fluctuations in materials and labour, providing you with peace of mind and predictable cash flow.

Let’s breakdown four key advantages of Fixed-Price Contracts:

1. Bank Financing

• Banks generally prefer fixed-price contracts for lending
• Makes mortgage approvals more straightforward
• Reduces the documentation needed during the build
• Provides clear milestone payments for drawdown schedules

2. Project Timeline Certainty

• Builders are more likely to stick to schedule since delays cost them money
• Clear completion dates can be contractually established
• Helps with planning your move and rental arrangements
• Enables better coordination with other contractors (landscapers, pool builders, etc.)

3. Quality Assurance

• Builders can’t cut corners to save costs since their margin is predetermined
• Specifications are clearly detailed upfront
• Material quality is locked in before construction begins
• Less likelihood of substituting premium products for cheaper alternatives

4. Simplified Decision Making

• Major decisions are made during the planning phase
• Reduces stress during construction
• Allows focus on design details rather than constant cost considerations
• Clearer process for handling any variations

Understanding Cost-Plus

Cost-plus contracts work differently. They charge you for the actual cost of construction plus a percentage for the builder’s margin. While this might sound straightforward, it’s like embarking on a journey without a fixed destination – exciting for some, anxiety-inducing for others.

The appeal? When material prices drop, you benefit directly. You’ll also have complete transparency over costs, seeing exactly what you’re paying for at each stage. However, this transparency comes with exposure to market fluctuations and potentially uncertain final costs.

What We’ve Learned from Experience

Having delivered numerous architectural homes across New Zealand, we’ve observed that fixed-price contracts often work best for clients who:

• Value financial certainty above all
• Have a clear vision and detailed plans
• Are working with a specific budget
• Prefer to sleep well at night knowing their costs are locked in

Meanwhile, cost-plus arrangements might suit those who:

• Want maximum flexibility to make changes during construction
• Have a more fluid budget
• Are building during stable economic conditions
• Prioritise transparency over cost certainty
• Typically more suited for commercial applications

Making Your Choice

The key is aligning your contract choice with your risk tolerance and project goals. If you’re building an architectural home with complex design elements, the certainty of a fixed-price contract can be particularly valuable. It allows you to focus on the creative aspects of your project without worrying about cost overruns.

However, if you’re comfortable with some financial flexibility and want to maintain maximum control over your project, a cost-plus contract might be your path. Just ensure you have a robust contingency budget and clear communication channels with your builder.

The Bottom Line

Your contract choice sets the tone for your entire building journey. At Slate, we believe in transparent conversations about these options early in the process. Whether you choose fixed-price or cost-plus, the key is understanding exactly what you’re signing up for and ensuring it aligns with your vision for creating your dream home.

Remember, the best contract is one that lets you focus on what matters most – creating an exceptional architectural home that you’ll love for years to come.