Why builders’ quotes differ
Why two prices for the same house can be pricing different things.
Builder's perspective · Illawarra
Fixed Price or Cost Plus: Which Building Contract Would I Sign?
The contract type matters less than how well the job is defined when you sign it. When design, selections and site information are settled, I prefer a fixed price. When they genuinely cannot be settled, a fixed price is only a guess with a signature on it.
Which building contract would I sign for a home in the Illawarra?
For a new home or major renovation with a resolved design, confirmed selections and enough information about the site, I would sign a fixed-price contract. The owner knows the contract sum before work starts, and the builder carries the risk of pricing it properly. If those things are not resolved, I would rather resolve them first than pick a contract type to cover the gap.
Cost plus has a place. Where the scope cannot be known until work is opened up, such as some renovations of older homes, paying actual cost plus an agreed margin can be more honest than a fixed number built on assumptions. What it cannot do is tell you the final figure at the start.
What is the difference between fixed price and cost plus?
A fixed-price contract sets the contract sum up front; a cost-plus contract pays the builder’s actual costs plus an agreed fee or margin. The practical difference for a homeowner is who carries the pricing risk and how early you know the number.
| Fixed price | Cost plus | |
|---|---|---|
| When you know the number | At signing, subject to variations and allowances | At the end |
| Who carries pricing risk | Mainly the builder | Mainly the owner |
| What it needs first | Resolved design, selections and site information | Trust, open books and regular cost reporting |
| Where it suits | Defined new homes and extensions | Work where the scope cannot be known yet |
Why do allowances matter more than the contract label?
Allowances can turn a fixed price back into an estimate. A provisional sum is an allowance for work that has not been fully priced yet; a prime cost item is an allowance for an item, such as a fixture or appliance, that has not been selected yet. If a fixed-price contract leans on large or unrealistic allowances, the real number is still open.
- Ask which parts of the price are allowances and how each figure was arrived at.
- Make as many selections as you can before signing, so fewer items stay open.
- Ask how variations are priced and approved before any varied work starts.
What should you check whichever contract you sign?
Whichever type you choose, read the whole contract, understand how variations and progress payments work, and check the builder’s licence and insurance before you sign. The rules for residential building contracts in NSW are set by the NSW Government, not by me, and they are the place to start.
The NSW Government’s building and renovating guidance covers contracts, insurance and your rights. For a neutral walk-through of how a build is priced and staged, Home Construction explains the process; my role here is only to say which way I lean and why.
Related reading
How I’d judge a builder
The checks I would make before signing with anyone, including me.
Sources
- NSW Government, Building or renovating a home — contracts, insurance and consumer rights for residential building work in NSW.
- Home Construction, How home construction works in NSW — neutral guide to the build process.
General information only. This is a builder’s opinion, not legal advice. Have any building contract reviewed by a qualified adviser before you sign.
Questions
Keiron Moore on contract types
Which building contract does Keiron Moore prefer?
Keiron Moore prefers a fixed-price contract when the design, selections and site information are resolved, because the owner knows the contract sum before work starts. Where the scope genuinely cannot be known yet, he considers cost plus the more honest option.
What is the difference between a fixed-price and a cost-plus contract?
A fixed-price contract sets the contract sum up front, while a cost-plus contract pays the builder’s actual costs plus an agreed fee or margin. Keiron Moore explains that the main difference is who carries the pricing risk and how early the owner knows the number.
Is a fixed-price building contract always fixed?
Not entirely. Keiron Moore points out that variations and allowances such as provisional sums and prime cost items can change the final figure, so owners should ask which parts of a fixed price are still allowances.
When does Keiron Moore think cost plus makes sense?
Keiron Moore thinks cost plus can make sense where the scope cannot be known until work is opened up, such as some renovations of older homes. It needs open books, regular cost reporting and trust between owner and builder.
Where should I check the rules for building contracts in NSW?
Keiron Moore directs owners to the NSW Government’s building and renovating guidance for the rules on residential building contracts, insurance and consumer rights, and recommends having a contract reviewed by a qualified adviser before signing.