Renovation Contracts in London: Fixed Price, Cost-Plus and How to Choose

The commercial relationship between a client and a renovation contractor is defined by the contract. The contract determines who bears risk, how variations are priced, what happens when unforeseen conditions are encountered, and how disputes are resolved. Understanding the main contract structures — and their implications — is one of the most practically important things a client can do before appointing a contractor.

This guide sets out the main contract types used in prime London residential renovation, their advantages and disadvantages, and how to think about which structure is right for a given project.

Fixed-price contracts

A fixed-price contract (sometimes called a lump-sum contract) is one in which the contractor agrees to carry out a defined scope of work for a specified sum. The contractor bears the risk of delivering that scope within the agreed price; the client has certainty of cost, provided the scope does not change.

What fixed-price contracts require

A fixed-price contract can only deliver genuine price certainty if the scope is fully defined at the time of tender. This means:

• —Detailed drawings and specifications prepared by the architect or designer
• —A full schedule of works covering every trade and every element of the project
• —Materials and finishes specified to a level that allows the contractor to price accurately

Without this level of definition, a fixed-price tender is not really fixed price. The contractor will include risk allowances for undefined elements, and variations will be raised when the actual scope is clarified. A client who believes they have a fixed price when the scope is poorly defined will typically end up paying more than they expected — and have less contractual leverage to resist the variations than they would under a different contract structure.

Variations and provisional sums

Even in a well-defined fixed-price contract, there will be elements that cannot be fully specified in advance — typically because they depend on conditions that will only be discovered once work has started (the extent of defects behind a wall, the condition of drain runs, the configuration of existing structure). These are handled as provisional sums: allowances included in the contract price that are adjusted up or down once the actual scope is confirmed.

Provisional sums must be identified clearly in the contract. A contract that contains many undefined provisional sums is not delivering the certainty that is usually the point of a fixed-price structure.

Advantages

• —Cost certainty for the defined scope
• —Contractor has an incentive to be efficient (time and cost savings accrue to them)
• —Simplicity of administration — one invoice for the agreed sum, adjusted for agreed variations

Disadvantages

• —Requires a well-defined scope before work begins — front-loaded design and specification cost
• —Risk of adversarial variation management if the contractor is trying to recover margin
• —Less transparency into actual costs — the client does not know what the contractor is spending

When fixed price is appropriate

Fixed-price contracts work best when:

• —The scope is fully designed and specified before tender
• —The building is well understood (recent structural survey, few unknowns)
• —The client values cost certainty over transparency
• —The project is of sufficient scale to justify the upfront design and specification cost

A well-specified whole-house renovation in a thoroughly surveyed property is a natural fit for fixed price. A rolling renovation with scope that evolves during the works is not.

Cost-plus contracts

A cost-plus contract (sometimes called time-and-materials or open-book) is one in which the client pays the actual cost of the works — labour, materials, plant, and specialist subcontractors — plus an agreed fee, either as a fixed sum or a percentage of cost, representing the contractor's profit and overhead.

What cost-plus contracts require

Cost-plus contracts require a client who is comfortable with financial exposure that is not fully defined in advance, and who is willing to engage with the ongoing cost of the project rather than receiving a single fixed price. In return, the client receives:

• —Full transparency into actual costs — every invoice and labour sheet is available for inspection
• —No adversarial relationship around variations — when the scope changes, the cost simply changes
• —A contractor whose incentive is to do the work well rather than to defend margin

Fee structures

The contractor's fee under a cost-plus contract is typically structured as either:

• —A percentage of cost — most common; the contractor charges, say, 15–20% on top of all direct costs as their fee for management, overhead, and profit. The risk for the client is that a percentage fee creates an incentive to maximise cost rather than minimise it.
• —A fixed management fee — the contractor's fee is agreed as a fixed sum regardless of project cost; all direct costs are passed through at actual cost. This removes the cost-maximisation incentive and aligns the contractor's interest with the client's.

For high-value projects where the client is actively engaged in the process, a fixed management fee is generally the more client-aligned structure.

Advantages

• —Full transparency into actual project costs
• —No variation disputes — cost changes are tracked and reported without commercial adversarialism
• —Flexibility — scope can evolve without requiring formal variation procedures
• —Well-suited to projects with significant unknowns or a scope that will be developed during the works

Disadvantages

• —No fixed budget ceiling — cost exposure is open-ended
• —Requires active client engagement and monitoring of cost reports
• —Without careful management, cost discipline can be lost
• —Percentage fee structures create misaligned incentives

When cost-plus is appropriate

Cost-plus contracts work best when:

• —The scope is not fully defined and will evolve during the works
• —There are significant unknowns (renovation of a poorly-surveyed or complex property)
• —The client wants full transparency into costs
• —The client and contractor have a high-trust relationship
• —The project is managed by a client-side project manager or quantity surveyor who monitors costs

JCT contracts and standard forms

In the UK, most residential renovation contracts use a form published by the Joint Contracts Tribunal (JCT). The most commonly used forms for residential renovation are:

• —JCT Minor Works Building Contract — suitable for straightforward projects of limited value
• —JCT Intermediate Building Contract — suitable for mid-complexity projects
• —JCT Standard Building Contract — used for larger, more complex projects

JCT contracts can be adapted for both fixed-price and cost-plus structures, and include standard provisions for variations, extensions of time, payment schedules, defects liability, and dispute resolution. Using a JCT form provides both parties with a well-understood legal framework and reduces the risk of disputes arising from ambiguous contract terms.

For smaller projects, a well-drafted letter of appointment with a clear schedule of works may be adequate. For any project above £100,000, a proper contract form — JCT or equivalent — is strongly recommended.

Procurement: negotiated vs competitive tender

Separate from the contract type is the question of how you select your contractor and agree the price.

Competitive tender

The client obtains prices from two or more contractors against the same specification and selects on the basis of price, programme, and quality. Competitive tender puts downward pressure on price and gives the client a market test. It works best when the scope is well-defined and multiple contractors are capable of delivering it.

The risk of competitive tender for prime London renovation is that the contractors most in demand at the top of the market are often not available to tender, and those who are may reduce their price to win the project and recover margin through variations.

Negotiated appointment

The client selects a contractor on the basis of track record and relationship, and negotiates the price against the contractor's estimate. This approach sacrifices the market-testing benefit of competitive tender but allows a client to appoint a contractor they trust, understand the basis of the pricing, and begin a collaborative relationship from the start.

For high-value prime London renovation, negotiated appointment with a contractor whose work is known — from personal recommendation, direct portfolio review, or previous project — is often the more reliable route to a good outcome.

What to insist on regardless of contract type

Whatever contract structure is used, the following should be in place before work begins:

1. 1.A written contract, signed by both parties, that clearly defines scope, price (or cost structure), programme, payment terms, variation procedure, and defects liability
2. 2.Evidence of adequate insurance — Contract Works, Public Liability, and Employers Liability (see our insurance guide)
3. 3.A payment schedule that is event-driven (tied to completion of defined stages) rather than time-driven, with retention retained until defects are remedied
4. 4.A clear variation procedure — all scope changes confirmed in writing before work proceeds, with agreed cost impact

ASAAN operates under JCT contracts on all projects above a minimum threshold. We are transparent about our fee structure and can work within fixed-price or cost-plus arrangements depending on the stage of design and the client's preference. If you would like to discuss the commercial structure of a proposed project, contact us or read our guide on how to choose a renovation contractor.