Fixed Price vs Provisional Site Costs: What Buyers Need to Know

Overview

One of the most important — and most misunderstood — concepts in a new home contract is the difference between a genuinely fixed price and a contract that contains provisional sums or prime cost items that can increase after signing.

Many buyers sign what they believe is a "fixed price contract" only to receive variation notices during construction for site costs, engineering requirements, or selections choices that exceed the allowances in the contract.

Fixed Price Contracts

A true fixed price contract means the builder commits to complete the agreed scope of work for the agreed price — no increases unless you request changes (variations) or an agreed cost-escalation clause applies.

In practice, a genuinely fixed price contract can only exist when:

• ✓A soil test has been completed and the site classification is known
• ✓Engineering assessments have been done
• ✓Your selections (tiles, flooring, appliances, etc.) are finalised
• ✓All provisional sums and prime cost items have been converted to fixed amounts

Most building contracts at the time of signing do not meet all of these criteria — which is why provisional sums are common.

Provisional Sums (PS)

A provisional sum is an estimated cost for an item or area of work where the final price cannot be determined at contract signing. The builder provides a best-estimate figure, but the actual cost is adjusted (up or down) once the work is completed.

The most common provisional sum items in new home builds are:

• Site costs / earthworksThe biggest and most common PS that blows out. Depends on soil class, rock, slope, fill, and drainage.
• Service connectionsCost to connect to power, water, sewer, and gas. Can vary significantly by lot location within an estate.
• Council requirements / engineering variationsUnexpected engineering upgrades (retaining walls, additional footings) triggered by council or inspections.
• Demolition (knockdown rebuilds)Demolition costs depend on what's found — asbestos, footings, trees.

Prime Cost (PC) Items

A prime cost item is a budget allowance for a specific supply item — such as a tapware set, tiles, or light fittings — where the buyer hasn't yet made their selection. The contract includes a PC allowance (e.g. "$800 PC for kitchen tap set"), and the actual cost is compared to this allowance at selection time.

If you choose a product that costs less than the PC allowance, you receive a credit. If you choose something more expensive, you pay the difference. Prime cost allowances are often set conservatively — meaning you may find that most available options exceed the allowance.

What to Look for in Your Contract

Before signing any new home contract, ensure you or your solicitor have:

• →Identified every provisional sum and prime cost item
• →Confirmed what soil class/category the site cost PS assumes
• →Asked for the builder's site cost experience on similar lots nearby
• →Confirmed what triggers variations to provisional sums
• →Asked what the realistic high-end scenario for site costs is
• →Confirmed that 'fixed price' is defined in the contract (not just marketed)
• →Had the contract reviewed by a solicitor experienced in building contracts

Frequently Asked Questions