Fixed-Price vs Cost-Plus Building Contracts: Which Is Better for Homeowners?

You've got two quotes on the table for the same kitchen extension. One says "fixed price £85,000, all in". The other says "cost-plus, current estimate £75,000 plus 15% on labour and materials". The cost-plus number looks cheaper. The builder offering it tells you it's the honest way to work. You only pay for what the job actually costs. The fixed-price builder tells you their number won't move. Which one protects you better?

This article explains what each contract type actually means in UK domestic building, who carries the financial risk, and the scenarios where each one is the right call. All Well works on fixed-price contracts, but cost-plus has its place, and the comparison only makes sense if both are described fairly.

The two contract types

Fixed-price contracts

A fixed-price contract (also called a lump-sum contract) commits the contractor to a total figure for a defined scope of work. The price is set before the job starts. If the builder underestimates labour hours, materials prices rise mid-project, or a sub-contractor lets them down, the builder absorbs the cost. The homeowner pays the agreed figure regardless.

The catch is the phrase "defined scope". The contract only covers what's written into it. If you change your mind about the kitchen layout, upgrade your tiles from £30/sqm to £80/sqm, or decide mid-build that you'd like an extra power socket, those count as variations and are priced separately. A proper fixed-price contract will have a written variations procedure: the builder quotes the change in writing, you sign it off, then the work proceeds.

Most reputable design-and-build firms working on extensions, loft conversions and full renovations in London quote fixed-price. The JCT (Joint Contracts Tribunal) publishes standard-form contracts that are widely used for residential work, including the JCT Minor Works and the JCT Home Owner contracts.

Cost-plus contracts

A cost-plus contract (also called open-book, or labour-and-materials) means you pay the actual cost of labour and materials as the job progresses, plus an agreed markup. The markup is usually a percentage (10–25% is typical, with 15% being common) or a fixed management fee. Materials receipts and labour timesheets are shown to the homeowner (hence "open book").

The builder doesn't carry overrun risk. If a job takes 20% longer than estimated, you pay for the extra hours. If timber prices jump 12% between quote and order, you pay the new price. The initial "estimate" is an indication, not a commitment.

Cost-plus is more common with small-trader builders, on listed buildings, on jobs with unpredictable scope (anything involving opening up old walls), and on long-standing relationships where the homeowner trusts the builder's invoicing.

Side-by-side comparison

Factor	Fixed-price contract	Cost-plus contract
Cost certainty	High — total price agreed before start	Low — final cost only known at completion
Who carries overrun risk	Contractor	Homeowner
Typical contingency baked in	5–10% inside the contractor's quote	None — risk passed to homeowner
Payment schedule	Deposit then fixed milestone payments (first fix, second fix, completion)	Weekly or fortnightly against invoices with receipts
Variation handling	Priced and signed off in writing before work proceeds	Absorbed into running cost, less formal process
Trust required from homeowner	Moderate — verify scope is complete, then price is locked	High — depends on accurate invoicing and honest timesheets
Best for	Defined-scope projects: extensions, loft conversions, full refurbs, kitchens, bathrooms	Listed buildings, unpredictable structural work, very small jobs, trusted long-term relationships
Watch-outs	Vague scope, missing PC sums, no variations procedure	Markup percentage on top of overruns, no spending cap, weak invoice trail

What "fixed price" actually means in practice

Fixed-price doesn't mean "no extras, ever". It means the builder commits to a price for the scope of work written into the contract. Anything outside that scope is a variation, and variations get priced separately. Any contractor who tells you their fixed price covers absolutely everything you could possibly think of mid-build is either lying or has padded the quote heavily to cover it.

A good fixed-price quote names exactly what's included. For a kitchen extension that means: the steel beam specified by the structural engineer, the brick type, the window glazing specification (U-value, manufacturer if known), the electrical specification (number of sockets, switch positions, lighting circuits), the boiler model if it's being replaced, and PC sums for fittings.

A PC sum (prime cost sum) is a budget allowance written into the contract for items the homeowner hasn't chosen yet: tiles, taps, kitchen units, sanitaryware. The contract might say "PC sum of £4,000 for kitchen units (supply only)". If you pick units that cost £4,000, no change. If you pick £6,000 units, you pay the £2,000 difference. If you pick £3,000 units, you get £1,000 credit. PC sums let you sign the contract before you've finalised every aesthetic choice, without the builder having to guess your taste.

Even on a fixed-price contract, sensible homeowners hold a 10–15% contingency of their own. Not because the builder will overrun (they shouldn't, that's their risk) but because the homeowner will change their mind. Upgraded tiles, extra power sockets, a different worktop, an additional rooflight discussed on site. These all cost extra and they almost always come up. Plan for them.

Red flags in a fixed-price quote: a number that's well below the market rate (a £200k extension quoted at £140k probably means corners are being cut somewhere you can't see yet); vague scope items like "re-tile bathroom" with no PC sum for the tiles themselves; no payment milestone schedule; no written variations procedure; no mention of Building Control fees, planning fees, or structural engineer costs (these have to be paid by someone, and if they're not in the quote they'll appear later as "extras"). Always ask: what's the £/sqm? For a London extension in 2026, anything below about £2,400/sqm warrants questions about what's being left out.

When cost-plus is actually the right call

Cost-plus gets dismissed too quickly by people selling fixed-price. There are real scenarios where it's the more honest approach.

Listed buildings and grade II properties where you genuinely don't know what's behind the plaster until you open it up. A builder quoting fixed-price on a 200-year-old cottage either has to load the price with a huge contingency (and you pay for risk that may not materialise) or under-quote and lose money. Cost-plus is more honest here.

Very small jobs, under about £5,000. A proper fixed-price quote needs a survey, a written scope, costed materials, and a variations procedure. That's an afternoon of unpaid work for the builder. On a one-day plumbing job or a small repair, day rates with material receipts (effectively cost-plus) is cleaner for both sides.

Long-standing builder-homeowner relationships where invoicing trust is established and the homeowner already knows the builder works at a fair rate. Some people have used the same trade for 15 years and have no need for the formal price-fixing apparatus.

Projects with genuinely unknown ground conditions or hidden structural issues. For example, a basement dig where the soil report is incomplete, or a renovation where there's known structural movement but the cause hasn't been diagnosed. Fixed-price on these projects either prices in catastrophe (homeowner overpays) or sets the builder up to lose money (homeowner ends up in dispute).

How All Well structures fixed-price contracts

Every All Well project runs on a fixed-price contract. The process: a free on-site survey at your property where I (Richard) walk through the scope with you, take measurements, photograph the existing conditions, and ask the questions that determine what the job actually involves. A written fixed-price quote follows within 48 hours.

The quote covers labour, materials, all planning fees (Lawful Development Certificate £103 or full planning at £206 where applicable), Building Control fees (typically £400–700 depending on the local authority), FENSA registration for new glazing, structural engineer calculations, party wall surveyor coordination where required, and Listed Building Consent or Conservation Area applications where the property needs them. If the work falls under Building Regulations Parts A, B, L, M or P, the relevant sign-offs are included in the price.

PC sums are used for any fittings you haven't picked yet: tiles, taps, kitchen units, sanitaryware. They're listed line by line with budget allowances, so you can see what's been allowed and either spend to that figure or adjust up or down with the difference flowing through to the final invoice.

Variations procedure is written into every contract. If you want to change something mid-build, you get the change quoted in writing, you sign it off, then work proceeds. Nothing is invoiced as a surprise.

Payment schedule on a typical £80–150k project: a deposit at contract signing (usually 10–15%), then milestone payments at first fix (structural shell complete), second fix (plastering and first-fix electrics complete), and a final balance on completion and Building Control sign-off. Every project ends with Building Control certification, FENSA registration where glazing is involved, and NICEIC compliance certificates for the electrical work. All Well is NICEIC, FENSA, Gas Safe and CHAS accredited, Companies House 12721034, founded 2020, with 57 verified Google reviews averaging 4.5/5 across 25 South East London boroughs.

Frequently asked questions

Is fixed-price always more expensive than cost-plus?

Not always, but often the headline figure is higher because a sensible contractor builds in a 5–10% contingency to cover their own risk. On a job that runs smoothly, cost-plus can come out cheaper. On a job with material price rises, weather delays, or an awkward delivery, fixed-price comes out cheaper because the contractor absorbs the overrun. The question isn't which is cheaper on day one. It's which protects you if things go wrong. Most homeowners value cost certainty enough to pay the small contingency premium.

What if the builder underquotes and goes bust mid-project?

This is the real risk with cheap fixed-price quotes. If a contractor takes a job at 20% below the market rate, they're either losing money or cutting corners that will become your problem after they leave. Defences: check Companies House for filed accounts and director history, check accreditations (NICEIC, FENSA, Gas Safe, CHAS all verify trading status), ask for references from finished projects, and make sure your payment schedule is tied to milestones, not heavily front-loaded. A builder asking for 40% upfront on a £100k job is a warning sign.

Can I switch from cost-plus to fixed-price mid-project?

Sometimes, if the remaining scope can be defined clearly. Once the building is opened up, the unknowns that justified cost-plus in the first place are often resolved. A contractor might agree to fix the price for the remaining first-fix and second-fix work once the structural shell is complete and visible. It needs a new written scope and a new variations procedure. Don't try to do it informally on a phone call. Get it on paper.

What's a "PC sum" and how does it work in a fixed-price contract?

A PC sum (prime cost sum) is a budget allowance for items you haven't picked yet. The contract might include "PC sum of £3,500 for bathroom sanitaryware (supply only)". You then pick the suite. If it costs £3,500, the contract price stands. If it costs £4,200, you pay the £700 difference. If it costs £2,800, £700 comes off your final invoice. PC sums let the contract be signed before every aesthetic decision is finalised, without locking you into the builder's first guess.

Do I still need contingency on a fixed-price contract?

Yes, but for variations you choose, not contractor overruns. 10–15% on top of the contract price is sensible. The contractor's risk is covered by their own contingency inside the fixed price. Your contingency covers the upgraded tiles, the extra rooflight you decide on once the steel is in, the kitchen units that came in £1,200 over the PC sum, and the additional sockets you didn't think of at the design stage. These almost always come up. Plan for them.

What payment terms should I expect on a fixed-price contract?

For a typical £50–200k project: a deposit at contract signing of 10–15%, then milestone payments at defined stages. A common structure is deposit, first fix (structural shell complete, windows in, roof watertight), second fix (plastering done, electrics and plumbing first-fix complete), and a final balance on completion with Building Control sign-off. Each milestone should be tied to verifiable work, not calendar dates. Never agree to a schedule that has you paying ahead of work delivered. A 5% retention held for 3–6 months after completion to cover defects is reasonable on larger jobs.

Get a free quote

If you want a fixed-price quote for a kitchen extension, bathroom, loft conversion or full refurbishment, All Well provides a free on-site survey and a written fixed-price quote within 48 hours. Every quote includes planning fees, Building Control fees, FENSA registration where applicable, structural engineer calculations, and a written variations procedure. Call 020 3920 9617 or use the contact form to book a survey. Unit 1 Limes Avenue, Anerley SE20 8QR.