The three contract types used in residential renovations#
Contractors propose different pricing structures depending on project predictability and risk:
- Fixed-Price (Stipulated Sum): The contractor commits to completing a clearly defined scope for a fixed dollar total. The contractor absorbs productivity risk.
- Time-and-Materials (T&M / Cost-Plus): The homeowner pays actual hourly labour rates plus material costs and a contractor markup (15–25%). The homeowner absorbs all productivity and timeline risk.
- Guaranteed Maximum Price (GMP): A hybrid where work is billed by actual time and materials, but capped at a binding ceiling.
Contract types comparison matrix#
| Contract Type | Budget Predictability | Best Used For | Main Risk |
|---|---|---|---|
| Fixed-Price | Highest (set total) | Well-defined renovations (kitchens, roofs, decks) | Contractor cutting corners if costs rise |
| Time-and-Materials | Lowest (open-ended) | Historic restorations with unknown framing rot | Budget runaway if crew works slowly |
| Guaranteed Max Price | High (capped ceiling) | Large multi-phase custom home additions | Complex accounting reconciliation |