A fixed-price or stipulated-sum agreement sets a stated amount for the work described in the contract documents. A cost-plus agreement generally reimburses defined project costs and adds a fee. A guaranteed maximum price, or GMP, puts a ceiling on the covered costs subject to the contract’s terms. Those labels are only a starting point: the documents define what is included, what can change, and what records the owner receives.
When comparing custom-home proposals, look past the headline number. Compare the scope, drawings and specifications, assumptions, exclusions, allowances, fee calculation, cost reporting, change procedure, and payment terms. A lower initial figure may describe less work or depend on more assumptions; a higher one may include items the other proposal leaves open. The actual contract—not the label—sets the parties’ rights and obligations.
What does fixed-price or stipulated-sum mean?
In a stipulated-sum arrangement, the agreement states a set amount for the work defined by the contract documents. “Fixed price” and “lump sum” are common plain-language descriptions. The amount is not meaningful without its scope: plans, specifications, included work, exclusions, allowances, and the process for approved changes all matter.
AIA Contract Documents describes stipulated-sum contracts as a common structure when the project scope is well defined. That is a general explanation, not a recommendation for a particular home. If important design selections or documents are unfinished, ask what assumptions the proposal relies on and how later decisions are priced. A contract may also identify specific circumstances that change the amount.
So “fixed” should not be read as “nothing can ever change.” The agreement may describe how owner-requested revisions, allowances, concealed conditions, or other defined events affect cost or time. Ask the builder to point to the relevant provisions and explain them in writing; have an independent construction attorney review the actual agreement if you need legal advice.
How does cost-plus pricing work?
In a cost-plus structure, the owner pays defined costs of the work plus a contractor fee. The agreement should explain which costs qualify, how the fee is calculated, how changes affect the fee, what documentation is provided, and how often the owner receives cost information. A percentage fee and a fixed fee are not interchangeable; the contract defines the method and its application.
Because the amount paid may depend on costs incurred, documentation and reporting are important comparison points. AIA’s instructions for its A102 cost-plus-with-GMP form identify items that require project-specific entries, including the contractor fee method, how the fee changes with scope revisions, allowances, and the assumptions behind the maximum price. Those details are useful questions for any proposed arrangement, but the AIA form is not necessarily the form used for your project.
What does a guaranteed maximum price cover?
A cost-plus-with-GMP arrangement combines cost reimbursement and a stated maximum for the costs covered by the agreement. The phrase “guaranteed maximum” can sound broader than the terms actually are. Read how the agreement defines reimbursable costs, what is inside or outside the cap, how allowances and contingencies are treated, which assumptions support the number, and how the maximum can be adjusted.
Ask how the agreement handles savings if covered costs finish below the GMP, and who can approve a change that may raise it. Do not assume the answer from the acronym alone. AIA’s A102 instructions separately call out the maximum price, accepted alternates, allowances, and assumptions—evidence that these points need to be specified rather than inferred.
How should two proposals be compared?
Use the same questions for each proposal. If a detail is not stated, mark it “not stated” rather than assuming it is included.
| Compare | Questions to ask |
|---|---|
| Scope | Do both proposals describe the same work, plans, specifications, site work, and project boundaries? |
| Assumptions and exclusions | Which design, site, utility, or selection details are still assumed? What work is excluded or separately contracted? |
| Allowances | Which items use allowances, how were the amounts set, and how are differences from the allowance handled? |
| Fee and cost basis | Is the fee fixed, a percentage, or another method? Which costs are eligible, and how does the fee apply to changes? |
| Cost information | What invoices, records, updates, or review rights does the agreement provide, and how often? |
| Change process | Who may request and approve a change? How are price and schedule effects documented before the work proceeds? |
| Payment terms | What events trigger payment, what documentation accompanies it, and how does the payment schedule align with the contract? |
| Schedule and responsibility | Which dates or milestones are stated, who provides each service, and how do the agreements fit together? |
The National Association of Home Builders’ published contract examples distinguish a fixed-fee owner-lot contract from a cost-plus owner-lot contract and list separate exhibits for plans, selection allowances, and change orders. These examples reinforce a practical point: price structure, scope detail, and supporting documents work together. They are not a universal contract template and should not be copied into a project without professional review.
What should you ask before signing?
Bring the same written questions to every proposal discussion:
- Which contract documents define the work and the price?
- What items are still assumed, excluded, or carried as allowances?
- How is the contractor’s fee calculated, and how can it change?
- If costs are reimbursed, what records and updates will I receive?
- If there is a GMP, which costs are covered, which are not, and what can adjust it?
- How are proposed changes priced, approved, and reflected in the schedule?
- Which payments are due at each stage, and what supporting documents are provided?
- Which architect, builder, consultant, or other professional is responsible for each service?
Compare the answers alongside the complete documents, not just a one-page summary. For a broader view of budget formation, see the Colorado custom-home cost guide. The budget-overrun guide covers tracking decisions after a working budget is in place, while the builder-selection guide addresses the wider process of evaluating a builder.
This article is general educational information, not legal, financial, or construction advice. Contract terms and applicable requirements vary. Have the specific agreement reviewed by an independent attorney and ask the responsible project professionals to explain technical or scope questions before you sign.
If you would like to discuss a Colorado custom-home project, Book a Discovery Call.
Frequently asked questions
What is the difference between fixed-price and cost-plus construction?
A fixed-price or stipulated-sum agreement states an amount for defined work. A cost-plus agreement generally reimburses contract-defined costs and adds a fee. The scope, exclusions, allowances, changes, and documentation terms determine what those labels mean for a particular project.
Is a fixed-price custom-home contract guaranteed not to change?
Not necessarily. The agreement may allow adjustments for specified changes or other defined circumstances. Review the contract documents and ask an independent attorney to explain terms you do not understand.
Does a guaranteed maximum price cover every project expense?
Do not assume that it does. Check how the contract defines covered costs, allowances, exclusions, assumptions, changes, and any adjustments to the maximum.
What should I compare when reviewing custom-home proposals?
Compare the same scope, plans, specifications, assumptions, exclusions, allowances, fee method, cost records, change procedures, payment terms, and schedule responsibilities across each proposal.
Is cost-plus always more expensive than fixed-price?
The label alone cannot answer that. The actual scope, cost definitions, fee, allowances, exclusions, changes, and final project decisions affect the comparison. Review the complete proposal and contract rather than relying on a general rule.
