Fixed-price building contracts: what is fixed and what can change

A fixed-price building contract fixes the price of the work described in its plans and specifications, subject to the circumstances in which the contract price is allowed to change under each state's laws.

Victoria's Act puts the ceiling directly: a builder must not demand, recover or keep any amount above the contract price unless the Act allows it². Prime cost items, provisional sums, variations and, where permitted, a cost escalation clause are the authorised routes.

For Queensland home warranty insurance, a fixed-price residential contract can still include three things: prime cost items, provisional sums and increases to reflect increased costs of labour or materials or delays in carrying out the work¹. A contract can include all three and still be a fixed price contract for insurance purposes.

A cost plus contract works differently. The final price is not known when the contract is signed. Queensland defines it as a contract where the amount the builder will receive cannot be accurately calculated at the start, even without prime cost items and provisional sums³.

In Victoria, cost plus contracts are generally limited to contracts of $1 million or more, or renovation work that cannot be accurately priced until some work has been carried out. The contract must contain the builder's fair and reasonable estimate of the total amount².

The QBCC reports that final costs under cost plus contracts are often considerably higher than the homeowners initially expected, and sometimes more than double their expectation⁴.

Which insurance scheme stands behind a fixed price if the builder fails, and what each state's scheme pays, is covered in Home warranty insurance by state.

Two kinds of estimate can be included in a fixed-price contract in all three states, and the estimate is replaced by the actual cost under the contract's terms. A prime cost item is a dollar allowance for a product not yet chosen, or whose price is not yet known. A provisional sum is an estimate for a piece of work that the builder cannot price accurately when the contract is signed². Queensland defines both terms in the same way³.

Queensland and Victoria set requirements for how these estimates are calculated. In Queensland the builder warrants that a provisional sum or prime cost item has been calculated with reasonable care and skill, having regard to all the information reasonably available when the contract is signed, including information about the site³. Victoria gives the same warranty for provisional sums and makes it an offence to enter a contract with a prime cost item or provisional sum amount that is less than the reasonable cost of the item or the work².

Victoria also requires more detail to be provided. In a major domestic building contract each item or sum needs a separate schedule with a detailed description and a breakdown of the estimate, including estimated material quantities and unit costs. The builder must give the owner a copy of any invoice, receipt or other document that shows the actual cost as soon as practicable².

Queensland requires a price that is not fixed to state how it will be calculated, including any allowances, in the contract schedule. The QBCC's guide explains that items a contractor cannot price exactly may be covered by an allowance instead of being included in the fixed price component of the contract⁶.

The New South Wales Act takes a different approach. The Home Building Act 1989 does not use the terms prime cost item or provisional sum in its contract rules, and the NSW Government's guidance describes prime cost items as items that cannot be costed exactly before the work begins and are listed as 'prime cost' items (PCs) in the contract⁷.

The maximum deposit on a new-home contract of $20,000 or more is 10 per cent of the contract price in New South Wales and 5 per cent in Victoria and Queensland. New South Wales fixes the cap at 10 per cent of the contract price for all residential building work⁵.

Victoria caps the deposit at 5 per cent of any contract price that is $20,000 or more and 10 per cent below that, provided the deposit is taken before work starts. An owner may end the contract before completion if the builder takes more than the permitted amount².

Queensland caps the deposit at 5 per cent for contracts of $20,000 or more and 10 per cent for regulated contracts above $3,300 but below $20,000. The cap can rise to 20 per cent where more than half of the contract price is for off-site work³.

Among the four builder inclusions documents BuildStreet has reviewed, two advertise a fixed price and both set site conditions for that price in the same document. G.J. Gardner Homes' Goulburn brochure offers a fixed price building contract, with no surprises, while its slab allowance assumes an 'M' soil rating, and its utility connections are priced to a "10 metre run"¹⁰.

Simonds Homes' Victorian booklet lists a fixed price guarantee among its selling points. Its foundations section states the slab is engineer designed up to 'H1' class, maximum 300mm fall and no existing fill. Site costs will be adjusted if founding conditions differ. The closing fine print adds that additional costs will be incurred for structural changes and the selection of some design options¹¹.

The other two documents make no fixed-price claim. Hotondo Homes' national list uses site-cost allowances instead. It includes a site costs allowance for a 650m² block up to 300mm fall and a connection allowance covering 10 m of power, a 6 m water run and a 45 m sewer connection and 60 m stormwater connection¹².

Coral Homes' Designer Standard Inclusions page makes no fixed-price claim and no site-cost basis in either direction¹³. None of the four marketing documents is the contract itself. The binding price and any provisions that allow it to change are set out in the signed contract and its schedules.

How the four documents handle allowances line by line, and how to line two builders' lists up against each other, is covered in How to compare builder inclusions like-for-like.

Some costs are outside the contract price because legislation allows them to be excluded, while others are excluded under the builder's own documents. In Victoria, a builder may exclude third-party charges for connecting or installing services such as gas, electricity, telephone, water and sewerage, as well as planning or building permits. The contract must state immediately after the price that the cost is not included and give a reasonable estimate of the amount². Queensland's law also excludes amounts paid directly by the owner to a third party for connecting services or obtaining a development approval³.

The builders' own documents draw the second boundary. Simonds Homes' booklet lists furniture, lighting fittings, security systems, fireplaces, air conditioning, carpets, floor tiling outside wet areas, landscaping, fencing, driveway and paving as not included, along with electricity, telephone and gas connection fees charged by retailers¹¹. Coral Homes' site disclaimer lists window coverings, landscaping, fencing, pools, water features and decorative lighting among the items not supplied by Coral Homes¹³. If a document does not mention an item, its status is unknown rather than excluded.

BuildStreet's beyond-the-build checklist separates confirmed exclusions, items not found in the builder's published document and general budget prompts. For a selected design's builder it lists confirmed exclusions where the builder's own document states that an item is not included. Items absent from a published list are marked as not found, meaning their status is unknown. The checklist also includes general budget prompts such as driveway, landscaping, fencing, window coverings and flyscreens without attributing them to the builder. No cost figure is attached to any row¹⁴.