If you've started talking to builders, you've encountered this question — even if it wasn't framed directly. The contract structure conversation tends to surface late, after you've developed a sense of who you want to work with. That makes it easy to accept terms without fully understanding them.
The contract structure isn't fine print. It defines where financial risk lives for two to three years and seven to ten figures.
Two primary structures: fixed price and cost-plus.
Fixed Price
A single agreed amount for the full scope of construction. The builder prices the work, accounts for overhead and profit, adds contingency, and commits to that number.
Costs under the fixed price: the builder keeps the difference. Costs over: the builder absorbs. Financial risk of execution sits with the builder.
A fixed price on a vague or incomplete specification isn't protection — it's an invitation for the builder to manage risk through change orders. The contract is only as good as the specification underneath it.
Cost-Plus
The builder passes through actual costs — labor, materials, subcontractor invoices — and charges a fee on top, either fixed or as a percentage. You pay what the project costs, plus the builder's margin.
The builder's margin is protected regardless of what the project costs. Material price increases, labor inefficiencies, unforeseen site conditions — all flow to the owner.
Where scope is genuinely uncertain — a complex renovation with unknown existing conditions, a design that hasn't been fully resolved — cost-plus puts you inside the financials. The risk is equally real. Without a defined scope and budget ceiling, cost-plus is an open-ended commitment.
Guaranteed Maximum Price
A GMP modifies cost-plus to address its primary weakness. The builder passes through costs up to a defined ceiling, absorbs overages beyond it. Below the ceiling, savings are typically shared.
A well-structured GMP gives you the transparency of cost-plus and the cost certainty of fixed price. In practice, the quality depends on the estimate it's built on and the completeness of the specification.
The question: what percentage of the total scope is covered by fixed line items versus allowances? A GMP with 30% of the budget in allowances is closer to cost-plus than to fixed price.
What It Means When a Builder Won't Offer Fixed Price
Some builders only work cost-plus. The reasons given vary — complexity, market uncertainty, the uniqueness of custom work. Some are legitimate. Many are not.
A builder who has built the same structural system multiple times, with an established subcontractor base and defined material specification, knows what a project costs with enough precision to commit to a fixed price. The uncertainty that justifies cost-plus is uncertainty about scope, specification, and execution. A builder with a refined process has resolved most of that in advance.
When a builder declines fixed price on a well-scoped project, they're telling you where they want the financial risk to sit.
Where Riley Lands
Fixed price for new construction with a complete specification. Our kit-of-parts system gives us the cost certainty to make that commitment.
When the structural system is defined, the envelope assembly is specified, and the finish palette is resolved before the contract is signed, we know what the project costs. Not within a range.
The fixed price is built from a line-item estimate against a complete specification, with contingency reflecting the actual risk profile. Change orders are issued when scope changes — not as a routine margin tool.
The Clarifying Question
Before signing any construction contract: what percentage of the total budget is fixed line items versus allowances?
A builder with a defined specification and honest estimating will have 85 to 90% fixed or better, with allowances only for genuinely open items — landscaping, owner-furnished fixtures not yet selected.
The contract structure matters. The specification underneath it matters more.
Riley Projects builds on fixed price contracts for new construction. Scope, specification, and budget are resolved before the construction contract is signed.