Renovation Budgets – Know your Numbers; comparing Fixed Price & Cost Plus
As published in Home Decor & Renovations Magazine – NOVEMBER 2014
IN THE RENOVATION BUSINESS SINCE 1985, TQ Construction is known for the two costing models that they offer to clients – Fixed Price and Cost Plus. With the Fixed Price model, you are buying something with a set price attached to it. Cost Allowances are contingency allowances for specific items of the scope of work within a fixed price contract. With Cost Plus you work with your contractor to develop a price throughout the planning phase of your project. With Cost Plus, the Fixed Elements are elements within the cost plus model that have a set price attached to them (can total as much as 50%-70% fixed with proper planning). With this in mind, we came to TQ with a few questions:
Q What is it about a project that makes it better suited to Fixed Price or Cost Plus?
Cost Plus generally works well for those more complicated projects, maybe due to the age, size or condition of the home, or jobs that require ground work or a significant addition. You carry the variability cost – if the project is easy, it is good for your budget, if it becomes more difficult, you pay for the extra work. Fixed Price is great for a smaller or less complicated project, where it will be easy to streamline the planning and construction. However, it is also a matter of personality type. Some projects are perfectly suited to Fixed Price, but if the client is a highly detail- oriented person who likes to be involved in every choice, they may lean toward Cost Plus — and a person who has a complex project, but who wants a hands-off experience and the peace of mind that comes with knowing the set budget will be maintained, will lean to fixed price.
Q Will each model produce projects of the same final price?
With fixed price, the budget planning can be done in great detail so the amount of the contract is determined before you start the project. With cost plus, you will be presented a fairly accurate budget, but changes that you make as the work is done will cause minor fluctuations on the cost. The key is planning — good planning minimizes changes along the way. Therefore, the cost could end up being the same in the end, or fixed price could even be lower — but at the initial phase of the contract the fixed price contract is often a little higher than cost plus. Clients suited to fixed-price like to know the cost at the beginning of the project, and clients who go with cost plus only want to pay for exactly the work that was done, and no ‘contingency’.
Q Which model does the contractor prefer?
TQ President Ralph Belisle explains it well: “For a predictable, simple, streamlined project – I love the fixed price model. For something that needs higher level of service, more analysis, greater breakdowns and more collaboration between the clients and our team, that’s when I’m going to encourage cost plus”.
In the end, we really want to be able to serve more clients in whichever model makes them feel comfortable and confident in the process.