The three pricing models
Construction projects can be priced three ways. Fixed price, fixed scope: contractor quotes a specific sum for a specific scope, with variations only by signed instruction. Day rate (or time-and-materials): contractor charges actual labour days, plus actual materials, plus a markup percentage. Cost-plus: contractor charges actual cost plus a fixed percentage management fee. Each shifts risk differently between client and contractor. For projects under £5,000 (small repairs, callouts), day rate is fine. For projects £5,000–£20,000 (small renovations, single rooms), either model can work. For projects over £20,000 (any meaningful extension or renovation), fixed price is the only sensible model — it puts the risk of over-runs on the contractor, where it belongs.
Why fixed price is the default for serious projects
Construction contains many unknowns: ground conditions, existing structure quality, hidden services, weather, supplier delays, planning variations, building control demands. On a fixed-price contract, all of these are the contractor's risk. The client pays the agreed price, period — variations only where the client has changed scope through signed instruction. On a day-rate contract, all of these become the client's risk. Each unforeseen day extends the bill. A 16-week extension that drifts to 22 weeks costs the client 6 weeks of day-rate labour — typically £25,000–£45,000 in overrun. Industry data suggests day-rate contracts run 18–35% over original estimate; fixed-price contracts run 2–5% over (variations only).
How we estimate for fixed-price quoting
Producing a robust fixed-price quote requires more upfront work than day-rate scoping. Our process: site survey by senior project manager (2 hours); existing condition assessment including ground investigation if needed (£600–£1,500); structural feasibility consultation; cost build-up against priced bill of quantities; contingency analysis based on project type and known risks; quote draft and internal review; client presentation with line-item visibility. Total quote preparation time: typically 8–14 hours per project, billable as £150–£300 design fee that we credit against the contract sum if you proceed. Why this matters: a robust quote based on thorough investigation is what allows fixed-price to work — vague scoping with optimistic numbers is how cowboys produce 'fixed prices' that grow.
Variation orders: how scope changes are managed
Every project has some scope change. The client decides they want a different worktop after seeing the kitchen units installed. Building control requires an additional structural element. The architect spots a detail that would benefit from upgrading. These are handled through written variation orders: contractor issues a variation note with the proposed change, cost impact (additional or saved) and programme impact; client signs to accept or rejects; signed variations become part of the contract. Verbal variations don't exist — we don't act on them, we don't bill for them. This protects both parties: client knows exactly what they're paying for, contractor knows scope is documented. Typical variations on a £100,000 project: 3–8 variations totalling £2,000–£8,000. Never a surprise at final invoice.
Provisional sums: a warning sign
Some contractors include 'provisional sums' (PCs) in their quotes — placeholders for line items not yet specified (e.g., 'Kitchen: PC £15,000'). PCs are sometimes legitimate (genuinely undefined scope at quote stage) but more often a vehicle for cost growth: the actual kitchen turns out to cost £22,000, and you pay the difference plus markup. A robust quote either fully specifies each element (£15,000 IKEA, £25,000 Howdens, £45,000 bespoke — pick one before signing) or excludes the element entirely from the contract sum (you buy and supply, we install for a fixed install fee). On our quotes, the only PCs that ever appear are for genuinely impossible-to-price-upfront items like ground investigation surcharges below 1.5m depth — we cap and detail them transparently.
Payment schedule on a fixed-price contract
Industry-standard milestone schedule: 5% on contract signature; 15% on site mobilisation; 20% on completion of structural shell (foundations, walls, roof structure); 20% on weather-tight (roof covering, glazing); 20% on first fix complete (services, insulation, plaster); 15% on second fix complete (joinery, decoration, fittings); 5% on Final Certificate. Total = 100%. Each milestone is signed off by the client before invoice is issued. No payment in advance of work being done. A 5% retention is sometimes held against the 6-month defects walk-through. This schedule protects both parties: contractor gets paid as work is delivered, client doesn't pay for work not yet done. Where a contractor wants 40%+ upfront 'to cover materials', be wary — that's a cashflow problem on their end.
