Which is better: a time and materials, cost-plus, or fixed price contract?
When you’re planning a kitchen or bathroom remodel in Portsmouth, NH, one of the most critical decisions you'll face is how your contractor will bill you. Your choice in this area can significantly impact not only your budget but also your overall experience during the remodel.
There are primarily two methods of charging for a service: a variable cost method, ie. Time & Materials or Cost-Plus. Or, a guaranteed cost method, like the aptly named Fixed Cost (also called Fixed Price). To avoid surprises, it is important to know which method your contractor will be using.
Let's explore the different contract types—Time & Materials, Cost-Plus, and Fixed Cost—and help you decide which will be the best fit for your project.
What is a time & materials contract?
The Time & Materials (T&M) method is the most commonly used variable price structure. Under a Time & Materials (T&M) agreement, you’re essentially paying for the contractor’s time and the materials used, as the name suggests.
The contractor sets an hourly rate, and you’re billed for the hours worked on your project, along with the cost of the materials needed, plus any markups.
It’s kind of like an open tab at a restaurant—you pay for what you get as you go.
Why choose a time & materials agreement for your remodel?
The Time & Materials (T&M) method is a popular choice for many homeowners in the New Hampshire seacoast area. This model offers several advantages:
Transparency: You receive a detailed breakdown of labor hours and material costs, giving you insight into where your money is going.
Flexibility: It's easy to make changes during the project, whether you're in the middle of a kitchen remodel in Portsmouth, NH, or upgrading a bathroom in Exeter.
Fairness: If the project is less complex than anticipated, you could end up paying less.
Under a T&M agreement, the homeowner is informed of exactly how many hours have been spent on the project, and what that costs. The same is true of the materials used. For people who value this type of information, T&M is a great way for a homeowner to get all of the information about the project that they desire.
Because the price is based on hours worked, instead of the scope of work, making changes to the scope of work is fast and easy. There is no need to take the time to create change work orders, the workers can make changes on the fly (change orders are still highly recommended, though). This is a huge advantage for complex projects or service jobs that require troubleshooting to figure out what needs to be done.
A T&M structure provides fairness by ensuring that the contractor is paid for all of the work he does if the project turns out to be very complex, while also ensuring the homeowner doesn’t pay a premium if it turns out to be a simple project.
T&M agreements are ideal for those who value detailed information and want the flexibility to adjust the scope of work without needing to go through lengthy change orders.
What are the risks of a time & materials contract?
While a T&M contract offers transparency and flexibility, it also comes with some risks:
Risk for the homeowner: If the project takes longer or requires more materials than expected, it can quickly exceed your budget.
Budget management: Managing a T&M project can be tricky if you're not familiar with construction costs.
Micromanagement trap: Some homeowners might feel the need to closely monitor every detail, which can be stressful.
With a T&M contract, the homeowner must pay for every hour worked, and every item used. This means that all of the risks of overages are carried by you, the client. If a project takes longer than anticipated, or requires more materials than expected, you may have to pay more than you planned (possibly more than you would have been willing to pay, if you had the choice).
Because the cost risk is borne by the homeowner, it is the homeowner’s responsibility to manage the budget for a time & materials project. If a homeowner has limited funds (as most of us do), they will need to have a thorough understanding of building and construction costs if they are to have the control over the project they need.
If a homeowner doesn’t have a good understanding of construction, they can easily fall into the trap of micromanaging the costs they have little control over, while missing the areas where they have the most control. Mismanaging a large project could have you paying significantly more than you initially planned.
How does a cost-plus contract work?
A Cost-Plus contract is similar to T&M (Time & Materials) but differs in a key way: rather than charging an hourly rate for labor, your contractor bills you for the actual cost of labor and materials, plus a pre-agreed markup or fixed fee.
Here’s how it works:
Imagine you’re remodeling your kitchen in Portsmouth, NH, and your contractor hires an electrician. Instead of charging the contractor an hourly rate, the electrician provides a fixed-cost bid for the electrical work. So, rather than billing you per hour (like in a T&M contract), your contractor bills you for the actual cost of the electrician’s work, plus a markup to cover management, coordination, overhead, and profit.
Is cost-plus only used when the contractor uses subcontractors?
Not at all! Sometimes a Cost-Plus contract will include both T&M and fixed costs. Your contractor may have a crew of carpenters who he bills for based on hours worked (T&M), as well as a plumber who is working for a fixed price.
In this example, a Cost-Plus structure allows the contractor to bill the client for the actual hours his crew worked, the actual material bills, and the fixed plumbing costs, plus either a fixed fee or a markup percentage.
Why choose a cost-plus agreement?
Cost-plus contracts offer several advantages similar to T&M contracts, with some added predictability:
Transparency: Homeowners get to see a detailed breakdown of actual labor and material costs. This can be helpful for those who want visibility into where their money is going.
Flexibility: Adjustments can be made more easily during the project. If you decide to upgrade your kitchen cabinetry or add extra features during your remodel, it’s simpler to accommodate those changes.
Predictability: Since portions—or even all—of the labor costs are based on fixed-cost bids (like your electrician or plumber), there’s less risk of labor cost overages compared to a T&M agreement. This can provide peace of mind, especially for larger projects.
Detailed Cost Insight: You can review the real costs involved, which is beneficial for budgeting and making informed decisions during the project.
For a deeper dive into the differences between time & materials and cost-plus, check out the detailed breakdown here: What’s the difference between time & materials and cost-plus contracts?
What are the downsides of a cost-plus contract?
While cost-plus contracts can be transparent and flexible, they also come with their own set of challenges:
Budget Unpredictability: While the contractor’s markup is fixed, the actual labor and material costs can still fluctuate, which means the final price might be higher than you initially anticipated. This is especially true if the scope of work changes or if material prices increase during the project.
Homeowner Responsibility: You may need to stay engaged throughout the project to monitor expenses, especially if changes are being made along the way. Regular communication with your contractor is crucial to avoid surprises.
Higher Markup for Project Management: If project management costs are included in the markup instead of being billed separately, as a project cost, it could lead to a higher overall markup. It’s essential to clarify this upfront to avoid misunderstandings about what’s included in your budget.
What is a fixed cost contract?
The Fixed Cost model is a bit different from both the T&M and Cost-Plus models.
With a Fixed Cost contract, the contractor provides a guaranteed price for a clearly defined scope of work. This means you know exactly how much the project will cost from the start, and the contractor takes on the risk if anything unexpected comes up.
What are the benefits of a fixed price contract?
The advantages of a Fixed Cost model are primarily:
Cost certainty: No surprises here—you'll know exactly how much your kitchen or bathroom remodel will cost before the project starts.
Focus on the big picture: You can focus on the overall value of the project without worrying about hourly rates or material markups.
Less risk: Since the contractor bears the cost risk, you’re protected from unexpected expenses.
With a Fixed Cost agreement, the contractor bears the risks associated with cost. The contractor agrees to do a specified scope of work for a specified dollar amount. If the work takes longer than expected, he will have to pay for it, not you, the homeowner.
A fixed price agreement helps a homeowner focus on the big picture, and the value the project will bring them, instead of worrying if the workers are going to be efficient, or if the material costs are on budget.
Because the scope of work is defined, and the cost is guaranteed, there is much less risk of surprises. Sometimes things happen, like unforeseen problems that need to be addressed, or changes the homeowner makes to the scope of work. But, with a Fixed Cost contract, these changes are addressed at the time they come up, and the cost of these changes are disclosed so that at the end of the project, there are no surprises. The final bill is exactly what the client expected.
What are the potential drawbacks of a fixed cost contract?
The primary disadvantages of a Fixed Cost contract are these:
Extra risk cost: Contractors may charge more to cover potential risks, which could make a simple project more expensive than with T&M or Cost-Plus contracts.
Less flexibility: Changes usually require formal change orders, which can add time and cost to the project.
To be frank, in order to take on the risk of a project’s costs, a contractor has to charge more money. He also needs to become a better estimator, and he has to plan for the possibility of the project being more complex. So, a simple project, that encounters no problems, will typically cost more under a fixed price agreement than it would have under a T&M or cost-plus agreement.
A Fixed Cost contract also offers less flexibility. It makes it more difficult to make changes, so projects that are complex and have a high potential to change, like service work that requires troubleshooting, are very difficult to estimate and provide a fixed price. Many service companies won’t provide fixed price contracts for these types of projects.
Which contract type is best for your remodel in the New Hampshire seacoast?
The best contract type depends on your project and priorities. If you value flexibility and want to know what each piece costs, a Time & Materials or Cost-Plus agreement might suit you. These models are excellent for complex projects where the scope might evolve during the process.
On the other hand, if you like knowing exactly what you’re going to pay before the work even starts, a Fixed Cost contract could be the ideal choice. This approach allows you to plan financially with confidence, knowing there won't be any surprises as long as the project scope remains unchanged.
Why Rothrock Kitchen & Bath Remodeling prefers fixed cost contracts
At Rothrock Kitchen & Bath Remodeling, we understand that homeowners appreciate peace of mind during a remodel. That's why we prefer to use Fixed Cost contracts for our projects. This way, you can move forward confidently, knowing that your budget is protected and that there won’t be any unexpected costs down the line. Our goal is to make your remodel a smooth, enjoyable process, focusing on delivering quality work with transparency and trust.
FAQs about remodeling contracts
Can I switch from a time & materials contract to a fixed price contract mid-project?
Switching contract types mid-project can be complex and may require re-evaluating the project's scope and costs. It can often be done, but not without disrupting the project schedule. It's best to discuss this option with your contractor early on if you're considering it.
How do I know if a fixed price contract is fair?
A fair Fixed Cost contract will provide a detailed breakdown of the scope of work and include a clear agreement on what happens if changes are needed. Finishing materials should be clearly specified, or cost allowances should be given to for these items. Make sure you thoroughly review the contract with your contractor and ask questions if anything is unclear.
Are there any hidden fees in a fixed cost contract?
A well-structured Fixed Cost contract should outline all costs upfront. However, if you request changes to the project scope after the contract is signed, those changes may incur additional fees.
Which is the best: fixed cost, cost-plus, or time & materials?
Choosing the right contract type for your remodel is crucial. Time & Materials and Cost-Plus contracts offer transparency and flexibility but come with higher financial risks. Fixed Cost contracts provide cost certainty, minimizing your financial risk and making budgeting easier. At Rothrock Kitchen & Bath Remodeling, we prefer Fixed Cost contracts to ensure a smooth, stress-free remodel for our clients.
By understanding these different contract types, you'll be better equipped to make an informed decision that aligns with your remodeling goals and budget.
Ready to start your remodel with a reliable contract?
Ready to transform your kitchen or bathroom with a clear and reliable contract? Schedule a free consultation with Rothrock Kitchen & Bath Remodeling today. Let us show you how we can make your dream remodel a reality. Give us a call or fill out our online contact form to get started!
