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Fixed Price or Cost Plus - which contract is right for you?

  • Writer: Ash
    Ash
  • Jul 11
  • 2 min read

What’s the Difference?

When it comes to choosing your builder, one of the big decisions you'll need to make is what type of contract suits you best: fixed price or cost plus?

If you're scratching your head about which is the better fit, here's a simple breakdown of each – pros, cons, and all.

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Cost Plus Contracts

What is it: This means you pay for the actual materials and labour costs plus a builder’s margin. In Australia, that margin typically ranges from 15% to 25%, depending on your location and the size of the job.

Who it suits: Cost plus contracts can be a good option for larger or more complex projects where the full scope of work isn’t entirely clear at the beginning.

What to expect: Your builder should provide detailed, itemised invoices showing exactly what you’re paying for, including how the margin is applied. At the outset, you’ll receive an estimate (not a fixed quote) based on the information available at that time.


PROS:

  • Can actually save you money – since builders don’t have to pad the price with contingency costs for unknowns

  • You’ll see exactly what you’re paying for, line by line

  • Offers flexibility with materials and finishes as the job evolves

  • Ideal for unique or custom jobs that are tricky to quote upfront

CONS:

  • Can feel more stressful not knowing your final cost

  • You’ll need to keep a contingency buffer (we suggest 10–20%) in your budget

  • Some banks may not approve a construction loan under a cost plus contract


Fixed Price Contracts

What is it: Just like it sounds – your builder provides a fixed lump-sum price based on your plans, selections, and the agreed scope of work.

Who it suits: This is a great option for straightforward jobs with a clear scope and predictable costs. The builder’s fee is already built into the total, and any changes along the way must be approved by both parties via a formal variation to the contract.

What to expect: You’ll pay a deposit (capped at 10% under Australian law), and make sure you have a signed contract and a valid Home Warranty Insurance certificate before any payment is made.


PROS:

  • You’ll know the full cost from the beginning, making it easier to budget

  • Payments are broken into clear, staged invoices (e.g. after framing, roofing, etc.)

CONS:

  • The initial quote may be higher to account for potential risk, delays, or price rises

  • Less flexibility once work begins – your choices need to be locked in early

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So… Which One Is Right for You?

There’s no one-size-fits-all answer – it really depends on your project, your personality, and your budget. If you value total clarity and need to know your costs upfront, a fixed price contract might give you peace of mind. If you're building something a bit more bespoke and want the freedom to tweak things along the way, cost plus could be the better fit – just make sure you have a clear understanding with your builder and keep track of spending as you go.



Either way, the most important thing is that you feel confident in your builder and the process – transparent communication and a good working relationship will always be more valuable than the contract type alone.

 
 
 

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