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What is a fixed price building contract?

A fixed price contract sets an agreed total price for the construction. The builder carries the risk of cost increases (except for excluded items like Provisional Sums). This provides budget certainty for the buyer.

What is a cost plus contract?

A cost plus contract charges the buyer for actual construction costs plus a builder's margin (e.g. 15–20%). There is no fixed price — final cost is unknown until completion.

Which is better — fixed price or cost plus?

For most residential buyers, a fixed price contract is preferred as it provides budget certainty. Cost plus contracts are used for complex custom builds where the full scope can't be determined upfront.

Are there risks in fixed price contracts?

Yes. Provisional Sums and Prime Cost items within a fixed price contract can still vary. True fixed price contracts with minimal Provisional Sums offer the best protection.

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Building Contracts & Costs

Fixed Price Contract vs Cost Plus Contract

The two main building contract types in Australia — what they mean for your budget certainty, risk exposure, and what to ask your builder.

5 min·Compare My Build — Independent Resource· Updated June 2025

Introduction

Understanding the type of contract you're signing is fundamental to protecting your building budget. A fixed price contract gives you certainty on the final build cost. A cost plus contract passes cost risk to you — with no guaranteed final price. For most residential home buyers, fixed price is strongly preferred.

Feature	Fixed Price Contract	Cost Plus Contract
Price certainty	Yes — agreed price upfront	No — final cost unknown
Who carries cost risk	Builder (mostly)	Buyer
Common for	Volume home builds	Complex custom / luxury builds
Provisional Sums risk	Still present if not fixed	All costs variable
Variations	Additional cost if scope changes	All changes charged at cost+margin
Transparency	Less — builder bears risk	High — all costs disclosed

Pros

+ Fixed price provides budget certainty — easier to finance and plan
+ Cost plus provides full transparency on actual costs
+ Fixed price removes risk of material or labour cost increases (mostly)
+ Cost plus allows maximum flexibility in design and specification

Cons

− Fixed price contracts often include Provisional Sums that can vary significantly
− Cost plus exposes buyer to all cost increases — final amount uncertain
− Fixed price may incentivise builders to cut margins on fittings
− Cost plus requires strong project oversight by the buyer

Common Trap

A 'fixed price contract' with many Provisional Sums is not truly fixed. Review your contract carefully and ask your builder to convert as many Provisional Sums to fixed allowances as possible before signing.