Cost-Plus Contract

What you owe under a cost-plus contract breaks into the real money paid to trades, suppliers, and labor, plus an agreed markup for running the job. The "cost" side is the documented, actual spend. The "plus" side is the builder's fee, set as either a fixed dollar amount or a percentage of cost (often somewhere around 10 to 20 percent). You pay the documented cost and the fee on top, and the builder shows you the invoices.

The defining feature is transparency. In a cost-plus job the owner can see exactly what the concrete sub charged, what the windows cost, and what the framing crew was paid, because the contract is built on passing those real costs through. That openness is also the trade-off: because the final number follows the true cost of the work, it is not locked in at signing. If material prices rise or the design grows, the total rises with it.

Compare that to the two other common structures. A fixed-price (lump-sum) contract sets one price up front and the builder absorbs overruns, which gives the owner certainty but bakes in a contingency cushion and hides the line-item costs. A guaranteed maximum price (GMP) is the hybrid: cost-plus transparency, but with a cap the total cannot exceed.

For example, a Scottsdale owner builds a highly custom home where finishes are still being chosen. Cost-plus lets the work start before every selection is locked, with the owner paying real costs as decisions firm up, rather than forcing the builder to guess a lump sum and pad it.

Arizona requires a written residential contract with specific terms under A.R.S. 32-1158, and a good cost-plus contract spells out the fee, what counts as a reimbursable cost, how allowances and change orders are handled, and how often you get invoices. Cost-plus rewards trust and active owner involvement. If you want a fixed number above all, a fixed-price or GMP contract fits better.