Fixed-Price or Cost-Plus: Which Remodeling Contract Protects You in Los Angeles?

What a fixed-price contract is

A fixed-price (lump-sum) contract names one total for a defined scope: these drawings, these materials, these allowances, this schedule, this price. If framing takes longer than the contractor planned, if lumber costs more next month, if the tile setter needs an extra day, the number does not move. The contractor priced the risk and carries it. Only two things change the price: a change you ask for, or a condition nobody could see, and both are handled by a written change order you sign before the work continues.

The form only works when the scope is real. A fixed price on a vague scope is a fixed price on nothing; the contractor fills the gaps later with change orders, or cuts corners to protect the margin. That is why we price after the walkthrough and the drawings, with allowances named and itemized by trade, material and permit fee, so the number you sign is the number you pay.

What a cost-plus contract is

A cost-plus contract bills you the actual cost of labor, materials, subcontractors and permits, plus the contractor's fee, either a percentage of cost or a fixed amount. The books are open and every invoice is yours to see. The risk is also yours: if the project takes longer or costs more, you pay more, and a percentage fee grows with the cost it sits on. Variants try to soften this, cost-plus with a guaranteed maximum price (a cap the contractor absorbs above) or time-and-materials with a not-to-exceed figure, but they all leave the budget open until the end.

Cost-plus has an honest use: work that cannot be scoped until it is opened, such as fire or water damage behind the walls, a foundation of unknown condition, or an emergency repair that has to start today. Even then it should carry a cap, weekly accounting and a plan to convert to a fixed price once the unknowns are known.

Fixed price vs. cost-plus at a glance

What California requires in every home improvement contract

Business and Professions Code §7159 governs residential remodeling contracts in California. Among other things, the contract must be in writing and must state the contractor's name, address and license number; a description of the project and the significant materials; approximate start and completion dates; a schedule of progress payments; and the down payment, which may not exceed $1,000 or 10 percent of the contract price, whichever is less. Progress payments may not run ahead of the value of the work performed or the materials delivered.

The law also requires written change orders: extra work becomes part of the contract only when a change order is prepared in writing and signed by both parties before that work begins. Contracts signed at your home carry a three-business-day right to cancel, five business days for buyers 65 or older. The contract must carry the mechanics lien warning and the notice that contractors are licensed and regulated by the CSLB. None of this depends on the pricing form; a cost-plus contract has to meet it too.

How change orders should work

A change order describes the change, prices it, shows its effect on the schedule and is signed before the work it covers starts. Allowances are the honest version of uncertainty: the proposal names a dollar amount for tile or fixtures you have not chosen yet, and the change order settles the difference when you choose. What should never happen is work that proceeds on a verbal "we will sort it out later," which is both the most common way a remodel goes over budget and a breach of §7159.

Unforeseen conditions, termite damage in a sill plate, a galvanized line that crumbles when touched, a foundation that is not what the drawings assumed, are priced the same way: in writing, with photographs, before the crew continues. In our contracts those items are the only ones that move the number.

Why quotes differ so much, and how to compare them

Two quotes for "a kitchen remodel" rarely price the same kitchen. One includes the permit, the engineering for the beam, the 200-amp panel and the re-pipe; another leaves them as allowances, exclusions or future change orders, and its lower total is an illusion. Compare line items, not totals: ask each bidder to show permits, engineering, electrical service, plumbing, cabinetry, countertops, tile, fixtures, demolition and cleanup as separate lines, and ask what is excluded. A fixed price with no line items is a cost-plus contract in disguise.

The kitchen, bathroom, ADU and room addition cost guides show what each tier should include, so you can tell a complete quote from a hopeful one.

When cost-plus can make sense

Fire or water damage that has to be opened before anyone knows its extent. A foundation or a hillside retaining condition that an engineer wants to see exposed. An emergency that must start before drawings exist. In each case the right contract is cost-plus for the investigation only, with a not-to-exceed cap, weekly accounting and a written conversion to a fixed price for the rebuild once the scope is known. A whole kitchen or an ADU on cost-plus is not a favor to you; it is a budget with no ceiling.

How Right Image Builders prices a project

A senior member of our team walks the house, measures, checks the panel, the plumbing and the lot, and talks through what you want. Within 3–5 business days (5–7 for a whole-home remodel) you receive an itemized fixed-price proposal with the schedule: every trade, every material, every permit fee on its own line, allowances named, exclusions stated. The deposit follows the California cap, progress payments follow completed milestones, change orders are written and priced before work continues, and the final payment is due only after your walkthrough and the closed permit; see our process and the hiring section of our FAQ.

What we recommend

Define the scope first: a site visit, drawings where the project needs them, selections or allowances for the rest. Then sign a fixed price, itemized, with written change-order terms, a milestone payment schedule and the §7159 contents, and verify the license at cslb.ca.gov before you sign anything. Reserve cost-plus for the genuinely unknown, and cap it. If a contractor will not give you a fixed price on a scoped project, the reason is usually in the scope, and that is the conversation to have before the walls open. The design-build guide covers who should produce that scope.

Sources (checked October 2026): Business and Professions Code §7159 (home improvement contracts: required contents, deposit cap, progress payments, written change orders, right to cancel); Contractors State License Board: Check a License, "What You Should Know Before You Hire a Contractor" and the home improvement contract requirements of Business and Professions Code §7159; CSLB industry bulletin on AB 2622: from January 1, 2025 unlicensed work is limited to $1,000 per project with no permit and no employees; Right Image Builders service and neighborhood pages (2026 planning ranges, timelines, permit authorities). Cost figures are Right Image Builders' 2026 planning ranges from its service and neighborhood pages.