Builder Guide

Fixed Price vs Cost Plus Contracts

Understanding the difference could save — or cost — you tens of thousands of dollars.

Fixed Price Contract

The builder agrees to complete the works for a set price. Variations are only permitted under specific contract conditions.

Pros

Budget certainty from day one
Builder absorbs cost overruns
Easier to obtain financing
Protects against material price rises
Clear scope of works

Cons

Builder builds in a risk margin (5–15%)
Variations can be expensive once locked in
Less flexibility to change during build
PC allowances may not reflect real costs

Cost Plus Contract

The owner pays the builder's actual costs plus an agreed margin or fee. Final price is not known until completion.

Pros

No inflated risk margin
Full transparency on costs
Flexible to change during build
May suit complex or heritage projects
Builder not incentivised to cut corners

Cons

No final price certainty
Budget overruns are your risk
Harder to get finance approved
Requires careful cost monitoring
Open to "scope creep"

Which Should You Choose?

Choose Fixed Price when: you have detailed plans and specifications, you want budget certainty, you're borrowing from a bank (most lenders require it), or you're building a standard new home or extension.

Consider Cost Plus when: you're doing a complex custom home, heritage renovation, or structural project where scope is genuinely difficult to define upfront — and you have a high degree of trust in your builder.

Our recommendation: For the vast majority of Australian homeowners, a fixed-price contract offers the best protection. Ensure PC allowances are realistic (not artificially low to make the quote look competitive) and have a solicitor review the contract before signing.

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