Fixed-Price Contract

One number, agreed before the first shovel. That is a fixed-price contract, also written as a lump sum or stipulated sum. You and the builder settle the plans, specs, and scope, and the builder names a total. If framing labor climbs or the lumber package runs over, the builder absorbs it. Buy well and the builder keeps the difference.

That risk transfer is priced in. A builder who cannot pass through overruns carries contingency inside the bid for material swings, weather delays, and the gaps a drawing set never closes. You pay for that cushion whether or not it gets spent, and you never see the line items. Certainty is what you are buying.

A fixed price is fixed against the scope, not against your decisions. Two things still move it. An allowance is a placeholder budget for a selection you have not made yet, say $18,000 for flooring. Choose tile above it and you pay the difference. A change order covers work you add or alter after signing, like adding a casita. A.R.S. 32-1158 requires an Arizona residential contract to state the total dollar amount to be paid, including tax, so paper every change against that total.

For example, a Cave Creek buyer signs a fixed price of $1.2 million on a complete, engineered plan set. Lumber comes in $22,000 over estimate and the builder eats it. The same buyer later upgrades to an RV bay, which is new scope, so a change order lifts the contract to about $1.24 million. Read the exclusions, because many fixed-price contracts carve out unforeseen soil conditions like caliche or rock.

Fixed price fits finished drawings and locked selections, and one stated total is the simplest number to hand a construction lender. Cost-plus runs the other way, billing documented costs plus a fee with the owner carrying the swings. A guaranteed maximum price sits between them, open books under a hard cap.