Which pricing model is right for your project?
When planning a construction or renovation project, one of the most important decisions you’ll make is how the work is priced. In Indonesia the two most common pricing models are Cost Plus and Lump Sum. Each has its advantages, risks, and ideal use cases.
Understanding the difference between these two models can save you money, reduce disputes, and give you better control over your project.
1. What Is Cost Plus Pricing?
Cost Plus means the client pays:
- The actual cost of materials
- The actual cost of labor
- Plus an agreed margin or fee for the contractor or project manager
How it works
- Materials are purchased transparently (often with invoices shared)
- Labor is charged daily, weekly, or per task
- A fixed percentage or management fee is added (for example, 10–25%)
Pros of Cost Plus
- ✅ Full transparency on material and labor costs
- ✅ Flexibility to change designs, materials, or scope mid-project
- ✅ Better quality control—materials are not downgraded to protect margins
- ✅ Ideal for custom builds, renovations, or evolving designs
Cons of Cost Plus
- ❌ Final cost is not fixed upfront
- ❌ Requires active involvement or trusted project oversight
- ❌ Poor documentation can lead to confusion if not managed properly
Best suited for
- Custom villas and architect-driven projects
- Renovations with unknown site conditions
- High-end or design-focused builds
- Clients who want control and visibility over spending
2. What Is Lump Sum Pricing?
Lump Sum (commonly called borongan) means the contractor provides a fixed total price for a clearly defined scope of work.
How it works
- The contractor estimates materials, labor, risk, and profit upfront
- One price is agreed for the full scope
- Payments are usually tied to milestones or percentages
Pros of Lump Sum
- ✅ Clear upfront budget
- ✅ Less day-to-day involvement for the client
- ✅ Easier comparison between contractors
- ✅ Suitable for simple, repetitive work
Cons of Lump Sum
- ❌ Limited flexibility—changes usually cost extra
- ❌ Risk of quality reduction if costs increase
- ❌ Disputes may arise over what is “included”
- ❌ Variations can significantly increase final cost
Best suited for
- Simple or repetitive work scopes
- Projects with complete drawings and specifications
- Small renovations or single-trade works
- Clients prioritising budget certainty over flexibility
3. Why Borongan Prices Can Vary So Much
In Indonesia, there is no single government-fixed borongan rate for private construction. Prices are influenced by:
- Site access and location
- Complexity of design
- Labor availability
- Material price volatility
- Risk allowance included by the contractor
Two borongan quotes for the same project can differ significantly—not always because one is cheaper, but because one includes more assumptions, risk buffers, or exclusions.
4. Cost Control: A Common Misunderstanding
Many clients assume:
“Borongan is cheaper.”
In reality:
- Borongan includes hidden risk margins
- Cost Plus shows costs as they actually occur
- Poorly defined borongan scopes often lead to expensive variations
A well-managed Cost Plus project can be more cost-efficient than a lump sum contract filled with contingencies.
5. Hybrid Models: The Best of Both Worlds
Many professional projects use a hybrid approach, such as:
- Cost Plus for structure and materials
- Borongan for specialist trades (MEP, roofing, joinery)
- Fixed management fee instead of a percentage
This balances transparency with cost certainty where it matters most.
6. Which Model Should You Choose?
Ask yourself:
- Do I want budget certainty or cost transparency?
- Is my design fully complete, or still evolving?
- Am I comfortable reviewing costs, invoices, and BOQs?
- Is quality or flexibility more important than speed?
There is no “one-size-fits-all” answer—only the model that best matches your project, risk tolerance, and involvement level.
Final Thoughts
Both Cost Plus and Lump Sum pricing can work well when used correctly. Problems usually arise not from the pricing model itself, but from:
- Poor documentation
- Unclear scope definitions
- Unrealistic expectations
- Lack of professional oversight
Choosing the right pricing structure—and understanding how it really works—is one of the smartest decisions you can make before breaking ground.