Cost-Plus Contracts Are Prohibited for Pacific Palisades Fire Rebuilds
Updated: Aug 12
As many may already know the CSLB is actively searching for fraud and have already caught multiple "builders" who are getting prosecuted for fraud in regard to illegally renting licenses or operating without a license. Here's what homeowners rebuilding after the Los Angeles wildfires should understand about fixed-price contracts, financial protection and CSLB requirements.
For Pacific Palisades homeowners rebuilding after the 2025 wildfires, selecting a contractor involves much more than comparing price per square foot. One of the most important protections begins with the construction contract itself.
The California Contractors State License Board (CSLB) has provided guidance that disaster-related residential rebuilding is subject to California's home-improvement protections, including requirements for fixed-price contracting rather than traditional cost-plus or time-and-materials arrangements for covered work.
At Gandia Custom Homes, we have been discussing these requirements with homeowners since the rebuilding effort began after the fires. With more Palisades projects now moving from design and permitting into construction, understanding these rules is increasingly important.
Why Cost Plus Matters
Under a traditional cost-plus contract, the homeowner pays the actual cost of construction plus an additional contractor fee or percentage. As project costs increase, the homeowner pays more and, when the builder's compensation is percentage-based, the builder can earn more as well.
Carmine Gandia of Gandia Custom Homes explains the concern:
“A fixed-price contract protects homeowners by establishing the cost for the agreed scope upfront, while cost-plus can create an incentive for project costs to continue increasing because the contractor earns more as the project becomes more expensive.”
This is particularly important for families rebuilding within insurance proceeds, financing limits and personal capital. A homeowner who has the resources for a $4 million project may not have the ability to absorb a project that ultimately reaches $5 million.
Fixed Price Does Not Mean Nothing Can Change
A properly structured fixed-price contract establishes the price for an agreed scope. It does not prevent a homeowner from changing or upgrading the house.
Custom homes evolve. If an owner upgrades cabinetry, adds architectural lighting or selects a more expensive stone, those decisions can be documented through change orders.
The important distinction is between a homeowner choosing to spend more because they changed the project and discovering that the original scope simply costs substantially more than anticipated.
Fixed-price construction therefore requires serious pre-construction from the builder. Plans, subcontractor pricing, allowances, exclusions, building systems and finish expectations should be understood before committing to a multimillion-dollar construction price.
California Provides Additional Financial Protections
California's protections extend beyond contract type. For covered home-improvement projects, the initial down payment is limited to $1,000 or 10% of the contract amount, whichever is less. Disregarding applicable home-improvement requirements can also expose contractors to CSLB citations, civil penalties, corrective orders and disciplinary proceedings that can affect their contractor's license that could ultimately lead to a suspended license. Certain violations may carry additional consequences and finding another contractor to take over that project will be an incredibly difficult task.
A homeowner agreeing to a particular arrangement does not necessarily relieve a licensed contractor of the contractor's responsibility to comply with California law.
What About Insurance?
We have not found a California rule stating that using a noncompliant contract automatically eliminates a homeowner's insurance benefits.
However, insurers, lenders and mortgage companies often require contracts, invoices and proof of construction expenditures when releasing rebuilding funds. Homeowners rebuilding substantially with insurance proceeds (fundung) should therefore make sure their construction agreement, payment structure and insurance requirements work together rather than creating unnecessary complications.
Verify It Directly With CSLB
Homeowners can get this information from CSLB themselves.
CSLB provides information directly to disaster victims explaining contract requirements, payment protections, licensing and other safeguards for homeowners rebuilding after a declared disaster.
If a contractor proposes cost-plus or time-and-materials contracting for a Pacific Palisades wildfire rebuild, homeowners should ask why and independently verify that the proposed arrangement complies with the requirements applicable to their project.
“But Another Builder Told Me Cost Plus Is Allowed”
Homeowners should be careful here. There are builders in the market offering cost-plus arrangements. There may also be unusual factual or contractual circumstances in which an attorney or contractor believes a particular project should be treated differently.
That determination should not be made casually. If a homeowner is being presented with a cost-plus agreement for a Pacific Palisades wildfire rebuild, the appropriate question is simple: Why does this contractor believe this particular agreement complies with California's disaster-related home-improvement laws and CSLB's published guidance?
And if there is uncertainty, verify it independently. Ask CSLB. Ask a qualified California construction attorney. Do not assume something complies simply because it is common practice or because multiple contractors are offering it.
Industry practice and legal compliance are not necessarily the same thing.
Building With Clarity
Gandia Custom Homes has been discussing these requirements with Pacific Palisades homeowners since the rebuilding effort began in 2025 because understanding the construction process is one of the best protections a homeowner can have.
Before signing, understand the price, scope, allowances, exclusions, payment schedule and change-order process. A professional builder should be able to clearly explain what is included, what can change and what can cause the price to increase.
If you are planning a Pacific Palisades rebuild and want to better understand construction pricing, contracts or the ground-up building process, Gandia Custom Homes welcomes the conversation.
Rebuilding should begin with clarity, transparency and a realistic understanding of what it takes to build a home that will last for generations.
None of this is financial advice. Be sure to contact your legal team in order to get the proper information you need for your specific situation.
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