Cost-Plus Contract

A cost-plus contract (also called “time and materials” or “cost-plus-fee”) is a renovation agreement where you pay the actual cost of all labour and materials, plus an agreed markup — either a percentage (commonly 10-20%) or a fixed management fee — as the contractor’s profit.

How it works

Instead of agreeing on a single total price upfront, your general contractor tracks all project costs as they occur and bills you for:

• Labour costs — wages for workers and subcontractors
• Material costs — everything purchased for the project
• Contractor’s fee — the agreed percentage or flat fee on top

You typically receive regular invoices (weekly or fortnightly) with receipts and timesheets to verify the charges.

When cost-plus makes sense

• Uncertain scope — when the full extent of work isn’t known upfront (e.g., renovating a very old property where hidden issues are expected)
• Design-as-you-go — when you want flexibility to make decisions during the build
• Emergency or urgent work — when there isn’t time for detailed pricing
• Trust-based relationships — when you have an established relationship with a contractor

Risks for homeowners

• No cost certainty — the final bill could be significantly higher than initial estimates
• Less incentive for efficiency — the contractor earns more if the job takes longer (though a good contractor won’t exploit this)
• Harder to budget — you need a generous contingency because the total is unknown

Protecting yourself

If you agree to a cost-plus contract, consider:

• Setting a maximum cap (guaranteed maximum price) so costs can’t spiral indefinitely
• Requiring regular cost reports with receipts
• Agreeing on a detailed scope of work even if the price isn’t fixed
• Getting an estimated range so you have a ballpark figure

For most standard home renovations, a fixed-price contract is usually the safer choice for homeowners. Cost-plus works best when both parties have high trust and the scope genuinely can’t be defined in advance.