Why We Never Cap a Cost Plus Job

Sooner or later, a client on a cost plus job will ask for a cap.

Sometimes it's called a "not-to-exceed figure". Sometimes it's a "guaranteed maximum price". The request always comes from the same place: they want to know the job won't run away from them.

It's a fair thing to want.

But we don't offer caps on cost plus jobs. Ever. And you shouldn’t feel you have to agree to one just to keep a client comfortable.

A cap is a fixed price in disguise

A cap is effectively a fixed price contract without the work that makes a fixed price safe.

When we price a job as fixed price, we do the definition work first: full scope, drawings and selections. Then we price it at a margin that reflects the risk we're taking on.

A cap skips all of that.

You carry the unknowns without the scope certainty or the margin to match. If the job goes over, you wear it. If it comes in under, the client keeps the saving.

Heads they win, tails you lose.

It also undermines the whole point of cost plus. The client pays for the work actually done and keeps flexibility over scope. Put a ceiling on it and every change becomes a potential argument about whether it counts against the cap.

What the client actually wants is certainty

When a client asks for a cap, what they're really asking for is confidence that the budget is being managed properly.

That's reasonable. And there are better ways to give them that confidence without taking on unpriced risk.

Here's how we approach it:

• A properly built budget. Start with a realistic, detailed budget and use the standard Master Builders Association (MBA) cost plus contract, without special conditions.

• A breakdown they can follow. Split the budget notionally by area or building element so clients can see roughly what each part costs. Be clear that preliminaries and site management don't divide neatly between areas.

• Firm numbers as they come in. As specifications are settled and quotes arrive, replace allowances with firmer figures. Make it clear which numbers are estimates and which are supported by actual quotes. Uncertainty isn't the problem. Hidden uncertainty is.

• Levers to pull. Help clients prioritise what needs to be done now, what can be repaired rather than replaced, and what can wait until later.

• No surprises. Document variations and obtain written approval in accordance with the contract, allowing for urgent make-safe work where necessary. Provide a monthly cost-to-complete report showing what's been spent, what's committed, what's still expected and where the final cost is likely to land.
  

Most clients don't need a ceiling. They need to understand where the money is going, what could change, and what choices they have if the budget starts moving.

That's how you give clients control without pretending every unknown can be priced away.

If they genuinely need a fixed price

Some clients do need a single number. That's fine.

It's just a different conversation.

Fixed price means properly defined scope, completed drawings and selections, and a margin that reflects the risk.

It's not a cap on a cost plus budget.

We've written about giving clients both options in Stop Arguing About Fixed Price.

Hold the line

The pressure to agree to a cap usually comes at the worst moment, when you want the job and the client is nervous.

That’s exactly when it’s easiest to give away the risk.

Don’t.

Explain why a cap doesn’t work. Show them the budget, how you’ll manage it and how you’ll report against it. Give them choices when costs change.

Don’t give away the risk for free.