Fixed price or cost plus, does either one actually stop scope creep?

Question

I'm looking at building a service around gut rehabs rather than owning them, something like an owner's rep who runs the schedule and the money for investors doing two or three heavy jobs a year. Every flipper I've talked to says the same thing killed them: scope crept, the timeline slid, the carry ate the spread. But when I ask what the contract said, the answers get vague. Half of them had a fixed price contract with a page of allowances, which sounds like a fixed price for nothing. The other half were cost plus 15 and effectively had no ceiling at all.

So what does the paperwork look like on a gut that has actually held? Specifically how you handle unforeseen conditions, since on a down-to-the-studs job the whole point is that you don't know what's behind the plaster until demo. And is there a version where the GC carries some of that risk, or does the owner always eat it?

priya_n21 · Answer

Isn't the simple fix just to hold back 10 percent until the end? If they want the last chunk they finish on time.

tonyv88 · Answer

Retainage helps with punch list, marlow, it does nothing for scope creep. I run turns and the pattern is the same at a smaller scale: the argument is never about whether the work got done, it's about whether the work was in the original scope. Retainage is leverage on completion. It's useless in a fight about definition.

dpatel_re · Answer

The contract can't price an unknown condition, it can only decide who pays for it and how fast that gets decided. On a gut I'd want three things written down. A unit price schedule for the predictable discoveries, so if you find a rotted sill you're paying an agreed rate per linear foot instead of negotiating mid-job. A change order clause with a dollar threshold and a response window, 48 hours, in writing, no verbal approvals. And the allowance list broken out with a named product and a real price per unit, not "cabinet allowance 12,000".

The cost plus jobs that hold have a guaranteed maximum price with a shared savings split. GC carries the overage above the GMP, you split anything under it, so their incentive isn't volume. Small GCs mostly won't sign a GMP on a gut without a fee that eats the difference, which tells you what the risk is worth.

diane_kowalski · Answer

The land version of this is a survey. You pay 800 to know where the line is instead of arguing later. Feels like the same idea, pay for the information before you're committed.

nicole_adeyemi · Answer

If the layout is being reconfigured you're in plan review and possibly a zoning determination, and that timeline sits outside any contract you sign with a GC. Moving a bearing wall or adding a bath usually pulls in a structural letter and separate trade permits, and in some jurisdictions changing bedroom count touches septic sizing. Ask what triggers review in that specific city, because it varies enormously and the GC will not own that delay.

laurenkim53 · Answer

In my price band nobody will bid fixed price at all. On an 80k purchase with a 60k gut, the two GCs who'd even show up quote time and materials on a handshake and one of them doesn't email. Your owner's rep product would be worth something out here, honestly, but the fee has to come out of a spread that's already thin.

mikeoconnell7 · Answer

I've been pricing something similar. The numbers I keep landing on are 5 percent of construction cost or a flat monthly, and on a 95k gut that's under 5k for four or five months of running someone else's schedule. Owners balk at it because it's visible money against an invisible saving. Easier sell is per-phase: scope and bid package first, then schedule management as a separate engagement.

brandonlee36 · Answer

sextant's unit price schedule is the part I'd steal. What broke for me as I added properties was that every discovery became a fresh negotiation, and the negotiation cost more days than the repair. Agree the rate for the ten things that always turn up in that vintage of house and most of the arguing disappears. Doesn't help with the eleventh thing, which on a gut is usually the sewer lateral.

Fixed price or cost plus, does either one actually stop scope creep?

8 replies