Is cost plus cheaper than a fixed price?

NAHB says it can be: if you and your builder track the budget and avoid change orders, cost plus can be the most competitively priced way to get a home built. It also says cost plus removes the incentive to work fast and the incentive to buy materials wisely, because everything is marked up.

Why would a fixed bid cost more?

NAHB says a contractor on a fixed bid has to make sure they do not lose money on problems that may or may not appear, so contingency funds for what-if situations are built into the number. Its example is mountainous terrain, where blasting bedrock can add thousands of dollars before the basement is poured.

What is a combination contract?

NAHB describes it as some parts of the house done on a fixed bid, some on an hourly rate and others on time and materials plus a percentage. It says the combination is increasingly common and can make the process easier for both sides, but that not every builder offers one.

What percentage does cost plus add?

NAHB describes cost plus as a percentage markup on all the material that goes into the home without publishing a standard figure, so ask each builder for their own number in writing — what the percentage is, what it is charged on, and whether it also applies to labor.

What is the difference between a cost plus and a fixed price construction contract?

Published August 22, 2026

A fixed bid names one price for a finished house; cost plus charges time and labor plus a percentage markup on materials, per NAHB.

NAHB puts it as three options rather than two. You will be contracting with a builder or with subcontractors for labor and materials in one of three ways: a fixed bid, cost plus — which it also calls time and materials, or an hourly rate — or a combination of the two. The combination is increasingly common, with some parts of the house on a fixed bid and others on time and materials plus a percentage.

Source: NAHB

This page is general information, not professional advice, and it is not legal advice. Building prices move with your lot, your plans and your local labor market, and the only number that counts is a written quote from a builder who has walked the site.

What a fixed bid does, and what it costs you

NAHB describes a fixed bid as the builder telling you exactly what you will pay for a finished home by a stated date, and then says plainly that it is more complicated than it sounds. On the advantages: with no surprises it can be a good option, the contractor is looking for the best deal on every material to keep the bid competitive, and the contractor wants the job finished quickly so they can move to the next one. On the disadvantages: the contractor has to make sure they do not lose money on a wide range of problems that may or may not appear, and you may not get the most competitive price because contingency funds for what-if situations have to be built into the number.

Source: NAHB

NAHB's worked example makes the point concrete. On mountainous terrain a builder may need to allow for blasting bedrock and excavating for the basement, which it says can raise costs by thousands of dollars before any concrete is poured. In a fixed bid the builder carries that risk and prices it in whether or not it appears.

Source: NAHB

What cost plus does, and what it costs you

NAHB describes cost plus as the contractor basing the estimate on the time and labor to build your home, plus a percentage markup on all the material that goes into it, and says it is used where costs are harder to predict. Its stated advantage is real: if you and your builder track the budget and avoid change orders, this can be the most competitively priced way to get a house built, because you are not paying for contingency that never gets used. Its stated disadvantages are just as real — there is no incentive to finish quickly, and no incentive to buy materials wisely, since everything that goes into the home is marked up.

Source: NAHB

	Fixed bid	Cost plus
Who carries the risk of the unknown	The builder	You
What you pay for that	Contingency built into the price whether or not it is needed	Only what is actually spent, plus the markup
Incentive to finish fast	Strong — the builder wants to move to the next job	NAHB says there is none
Incentive to buy materials well	Strong — a better price is the builder's margin	NAHB says there is none, because everything is marked up
What you have to watch	What is an allowance rather than a specification	The running budget, and every change order

The trade-off, in NAHB's own terms.

Source: NAHB

The combination, and why builders offer it

NAHB describes the combination as increasingly common and gives the buyer's argument for it directly: if you invest your time in choosing cabinets, why should a builder take a percentage for ordering them? It says a combination bid can make the process easier for both sides while building trust, and that not every builder offers one.

Source: NAHB

What to ask before you compare two bids

Ask each builder which of the three ways they charge, before you look at either number.
On a fixed bid, ask which lines are allowances and which are specifications, because an allowance is not fixed.
On cost plus, ask what the percentage is, what it is charged on, and whether it applies to labor as well as materials.
On cost plus, ask how often you see the running budget, and in what format.
On both, ask what triggers a change order and what a change order costs to process.
On both, ask what happens to the price if the schedule slips, and get the answer in the contract rather than in conversation.

The line item on a fixed bid that is not actually fixed: what a builder allowance is.

Two builders quoting the same house on two different contract types are not giving you two comparable numbers. Ask both for the same one. These are the custom home builders AI assistants actually name when homeowners ask. Nobody can pay to be on these lists.

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Questions people ask next

Is cost plus cheaper than a fixed price?: NAHB says it can be: if you and your builder track the budget and avoid change orders, cost plus can be the most competitively priced way to get a home built. It also says cost plus removes the incentive to work fast and the incentive to buy materials wisely, because everything is marked up.
Why would a fixed bid cost more?: NAHB says a contractor on a fixed bid has to make sure they do not lose money on problems that may or may not appear, so contingency funds for what-if situations are built into the number. Its example is mountainous terrain, where blasting bedrock can add thousands of dollars before the basement is poured.
What is a combination contract?: NAHB describes it as some parts of the house done on a fixed bid, some on an hourly rate and others on time and materials plus a percentage. It says the combination is increasingly common and can make the process easier for both sides, but that not every builder offers one.
What percentage does cost plus add?: NAHB describes cost plus as a percentage markup on all the material that goes into the home without publishing a standard figure, so ask each builder for their own number in writing — what the percentage is, what it is charged on, and whether it also applies to labor.

Written for homeowners by Most Recommended Custom Home Builders, which measures which custom home builders AI assistants actually recommend in 12 U.S. metros. Nobody can pay to be on those lists. How we measure.