Fixed price vs cost plus building contracts

What is the difference between fixed price and cost plus?

A fixed price (or lump sum) contract sets the price for the agreed work before you start. The builder carries the risk of their own costs running over; the price only changes through variations, provisional sums, prime cost items or any clause the contract allows.

A cost plus contract pays the builder their actual costs plus a margin or fee for overheads and profit. The QBCC describes it as a contract where the amount the builder will receive "cannot be accurately calculated". You carry the risk of costs rising.

	Fixed price	Cost plus
Who carries cost risk	Mostly the builder	Mostly you
Price known at signing	Yes, apart from allowances and variations	No, only an estimate and the margin
Incentive to keep costs down	Builder keeps any savings	Weak; the QBCC notes a disincentive to minimise costs
Paperwork you check	Stage claims against work done	Every invoice and receipt
Best for	Most new homes and renovations with complete plans	Work that cannot be scoped until it is opened up

Are cost plus contracts allowed for homes?

The rules differ by state, and two of the biggest markets restrict or warn against them.

• Victoria: a cost plus term is illegal in a domestic building contract worth less than $1 million (contracts signed from 1 August 2017), except in very limited circumstances on renovations of existing houses. Consumer Affairs Victoria says to get legal advice before signing one.
• Queensland: cost plus and construction management contracts are legal for domestic work, but the QBCC strongly recommends legal advice first and says final costs are "often considerably more" than owners expected. Crucially, non-completion assistance under the Queensland Home Warranty Scheme is not available on cost plus or construction management contracts.
• NSW: cost plus is allowed, and progress payments on a cost plus contract must be supported by receipts or other verifying documents.

For other states, ask a lawyer how cost plus would interact with the home warranty cover described in our warranty insurance guide.

What are provisional sums and prime cost items?

They are allowances inside a fixed price contract for things that cannot be priced exactly at signing. They are the main reason a fixed price build ends up costing more than the contract figure.

• Prime cost (PC) item: a fitting or material you haven't chosen yet, such as a basin, tapware, oven or tiles. The contract allows an amount; if your pick costs more, you pay the difference plus any margin the contract allows.
• Provisional sum (PS): an estimate for work the builder can't price yet, such as rock excavation, piering or a retaining wall. If the work costs more, you pay more.

In Victoria you have a legal right to a "reasonable estimate" for provisional sums, the builder must make a reasonable allowance for the site, and the contract must list every PC and PS item. In NSW, the builder should allow a price that covers their expected cost of PC items.

How to keep allowances honest

• Add up every PC and PS item and work out what share of the price they make. A large share means the price is less fixed than it looks.
• Price your real choices against the PC allowances before you sign.
• Ask for the builder's margin on PC and PS overruns in writing.
• Compare allowances line by line across quotes. A low allowance makes a quote look cheaper.

How do variations work?

A variation is any change to the plans, specification or price after you sign. Variations should be agreed in writing before the work is done, with the cost and any delay spelled out.

State	Rule
QLD	The builder must give you the variation in writing before that part of the work starts, or within 5 business days of agreeing it, whichever is first. It must describe the change, the price change and any delay. Urgent safety work is the exception.
NSW	Variations must be in writing, signed by you and the builder (or their nominated supervisor or agent) and attached to the contract, with a statement of the cost. Urgent work to prevent danger or damage can be written up afterwards.
VIC	Both parties must agree in writing, including the new price and completion date, before the work is done. A builder can skip the formal notice only if the change needs no permit change, causes no delay and adds no more than 2% to the contract price.

Victoria's Domestic Building Contracts Amendment Act 2025 passed Parliament on 11 September 2025 and takes effect by 1 December 2026. It brings in a single variation process for major domestic building contracts, lets deposit and progress payment limits be set by regulation, and allows cost escalation clauses of up to 5% on contracts of $1 million or more. Check the current rules if you sign in Victoria after that date.

Deposit caps and progress payments by state

Every state except the ACT caps the deposit a builder can take on a home building contract. After the deposit, payments must match work done.

State	Deposit cap	Progress payments
QLD	5% for $20,000 or more; 10% for $3,301 to $19,999; 20% for $3,300 or less	Negotiated, but must match work done (no more than 50% paid until 50% of the work is done)
NSW	10%	Schedule required over $20,000; payments must match work done
VIC	5% for $20,000 or more; 10% under $20,000	Set stages: base 10%, frame 15%, lock-up 35%, fixing 25%, balance at completion (full build)
WA	6.5% on contracts of $7,500 to $500,000	Only for work done or materials supplied; no set stages
SA	5% for $20,000 or more	Only for work already done, on written request
ACT	No statutory cap	Pay for completed stages after the certifier inspects (government advice)
TAS	10% for $20,000 to under $50,000; 5% for $50,000 or more	No set schedule
NT	5%	Base 10%, frame 20%, enclosed 25%, fixing 30%, practical completion 7%, balance at final stage

As at 26 October 2026. Queensland, WA and Tasmania allow up to 20% where off-site work (prefabrication, or cabinetry in WA) is more than half the contract price.

Which contract type suits your job?

Job	Usually suits	Why
New project or volume home	Fixed price	Plans and inclusions are standard and can be priced in full
Custom home with full documentation	Fixed price with tight allowances	Complete drawings and selections remove most guesswork
Extension or second storey	Fixed price, with provisional sums for unknowns	The new work can be priced; hidden conditions sit in PS items
Heritage restoration or heavy repair work	Cost plus may be worth considering, with legal advice	Nobody can price what's behind the walls until it is opened up
Commercial fitout or build	Lump sum on a standard form contract	A tendered lump sum gives price certainty; commercial work sits outside the home warranty schemes

If a builder pushes cost plus on a job with full plans, ask why. In Victoria, it may not even be legal below $1 million.

What to check before you sign either type

1. Read the price clause and confirm whether it is fixed, and whether GST is included.
2. List every PC and PS item and total them.
3. Look for rise and fall or cost escalation clauses that let the price move with material costs.
4. Check the deposit against your state's cap and the payment stages against the table above.
5. Check the cooling-off period: 5 business days in Queensland, Victoria and Tasmania, 5 clear business days in NSW (over $20,000) and SA.
6. Get legal advice on any cost plus contract, and on any large fixed price one.

Then work through our questions to ask a builder, and use the building costs guide to sense check the price.

Common questions

Is a fixed price contract really fixed?

Only partly. The base price is fixed, but provisional sums, prime cost items, variations you request or the certifier orders, and any rise and fall clause can all change it. The more allowances in the contract, the less fixed the price is.

Is cost plus cheaper than fixed price?

Not usually for homeowners. A fixed price builds a risk margin into the price, but under cost plus you pay every overrun plus the builder's margin on it. The QBCC says final costs under cost plus are often considerably more than owners expected.

What is a reasonable provisional sum?

One based on a real estimate of the likely cost, not a placeholder to make the quote look low. In Victoria you have a legal right to a reasonable estimate. Ask the builder how each provisional sum was worked out and compare them across quotes.

Can a builder charge for a variation I didn't sign?

In Queensland, NSW and Victoria variations must be in writing, so an unsigned or undocumented variation is hard for a builder to enforce. Urgent work for safety is the main exception. Raise any disputed charge in writing straight away.

How much deposit should I pay a builder?

No more than your state's cap. That is 5% on jobs of $20,000 or more in Queensland, Victoria and SA, 10% in NSW, 6.5% in WA, 5% in the NT, and 5% or 10% in Tasmania depending on price. Never pay a deposit before receiving the warranty insurance certificate where one is required.

Sources

1. QBCC: Cost plus and construction management contracts
2. QBCC: Domestic building contracts
3. QBCC: Contract variations
4. QBCC: Deposits and progress payments
5. QBCC: Cooling-off period
6. NSW Government: Contracts for residential building work
7. Consumer Affairs Victoria: Building contracts
8. Consumer Affairs Victoria: Changing a domestic building contract price
9. Consumer Affairs Victoria: Deposits and payments for building work
10. Consumer Affairs Victoria: New domestic building contract laws passed in Victoria
11. WA Government: Notice for the homeowner (PDF)
12. WA Government: Building contracts and progress payments (PDF)
13. CBS: Form 1 Your building contract, your rights and obligations (PDF)
14. ACT Planning: Building contracts
15. Residential Building Consumer Guide, July 2024 (Tas, PDF)
16. Building Regulations 1993 (NT)

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