We built our home that way. Very satisfied with our contractor and the finished product. It was nice for us, because when it came time to buy appliances, for example, I was able to go and buy them myself (at a discount to me for buying several at once during an appliance sale at Sears and getting a huge rebate) vs. choosing from a list somewhere else and paying an added percentage on the appliances along with the rest of the house. I gave all the specs on the appliances to the cabinet maker, and everything fit and was installed perfectly. All I had to do was find out when they needed them delivered to the site and that was that.
I found that it gave me a lot of leeway in choosing materials. If I wanted a particular shower head in the master bath, I chose it. No worries about if it was off a list of items provided that would fit into the contract costs. If we decided to splurge on something... we did. If we decided we didn't want a particular "upgrade" then we went with a less expensive choice. It was very nice to know exactly what it cost to have THESE granite counters as opposed to THOSE granite counters... Or to decide to add a built-in bookshelf after meeting with the cabinet guy. We knew that our builder wasn't upping the pricing on any items to give himself a bonus... he made his money off whatever upgrades we added in automatically.
Our contractor priced out his "typical" work for us with our plans, and then we made adjustments to what we wanted based on that. For example... some builders only install 3" baseboards... anything larger costs more. Well, our builder's 'standard' install for baseboards is the 5" ones. So that is how our plan was priced out for estimation purposes.
It is important when you are doing the estimate with your builder to find out what he is basing his figures on... some builders don't even install window trim if you don't ask for it! So make sure that you are getting enough information when you sit down with the price list and write out your contract.
I am one of those people that, when given a group of items to choose from, always end up choosing the most expensive item... without knowing any prices on anything. So it is very hard for me to go into a showroom to pick floor tiles, and be told that you can choose from "these", but "those" over there aren't included in your choice list. If I want "that" one, that's the one I want. I want the one I like the most that we can afford... and if happens to be $.20 a sq ft more than what we were allocated by some contract price plan, then I am going to be ticked! So I found that we had a LOT of flexibility when it came down to the finer details... dimmer switches here and not there, Sat TV wiring in THESE rooms, this many colors of paint, this type/size/pattern of flooring, these cabinet pulls, (or no pulls at all!)
We also were able to decide halfway through the building process, that we did in fact want to add a pool. No problem. We didn't need to rewrite the entire contract. We actually met with the pool company, got our estimates directly from them, and all the bills were forwarded to our contractor, who, by the way, never asked for a dime up front for ANYTHING.
Maybe we just got lucky.... be we had a wonderful experience. Far better than our first go-around building a house with fixed amount contract.