Fixed-price vs cost-plus building contracts in NSW: which one protects you

The contract you sign decides who carries the risk when a build costs more than expected. For most custom homes on the South Coast, a fixed-price contract is the safer choice. You agree a price up front, and the builder wears the cost of getting their numbers wrong. Cost-plus shifts that risk onto you, and it only makes sense in a narrow set of cases. Here is how the two compare, what NSW law requires either way, and what to check before you sign.

The two contracts in plain terms

A fixed-price contract, sometimes called a lump-sum contract, sets one price for the agreed scope of work. If the build runs over because the builder underestimated labour or materials, that is their problem, not yours. The price only moves if you change the scope, or for genuine variations and provisional items already priced in the contract.

A cost-plus contract has no fixed final price. You pay the actual cost of labour and materials as they are used, plus the builder's margin, usually around 15 to 25 per cent on top. You see every invoice, but you also carry every overrun. On cost-plus jobs, final costs running 20 to 40 per cent above the early estimate are common, because nothing in the contract holds the builder to that estimate.

What NSW law requires either way

Some protections apply no matter which contract you sign. Under the Home Building Act 1989 (NSW), any residential building work over $5,000 needs a written contract. Once the work is worth more than $20,000, you need a full home building contract that sets out the statutory warranties, the Home Building Compensation (HBCF) cover, and either the contract price or a clear warning that the price is not known.

Your builder must hold HBCF home warranty insurance for work over $20,000 before they start or take a deposit, and give you the certificate in writing. Every contract over $20,000 also needs a progress payment schedule, and on a cost-plus job each payment has to be backed by receipts. Statutory warranties on workmanship apply regardless of the contract type.

When fixed-price is the right call (almost always)

If your home is designed and documented properly before you sign, a builder can price it accurately, and fixed-price gives you what most people actually want: a number you can budget and borrow against. Your bank prefers it too, because the loan is sized to a known figure. The key is that the design is resolved first. A fixed price built on a half-finished design just turns into a stack of variations later.

Provisional sums and prime cost items are the honest exception. Things you genuinely cannot pin down at signing, like a stove you have not chosen or a site cost that depends on excavation, can sit in the contract as an allowance and be trued up later. A good fixed-price contract names these clearly so there are no surprises.

When cost-plus can make sense

Cost-plus suits work where the scope honestly cannot be known up front: heritage restoration, complex renovations where you cannot see behind the walls, or a build the owner wants to keep changing as it goes. If you choose it, protect yourself. Agree the margin in writing, insist on receipts for every cost, set a not-to-exceed cap or a clear estimate the builder has to flag against, and get regular reconciliations. Without those, cost-plus is an open cheque.

Questions to ask before you sign

Is this a fixed price for the whole scope, or are parts of it provisional? Which items are provisional sums or prime cost allowances, and how were they estimated? How are variations priced and approved? What does the progress payment schedule look like, and does each payment match real work on the ground? Is the HBCF certificate in hand before any deposit? A builder who answers these plainly is one you can trust with the build.

How we handle it

Because we design and document in-house before pricing, we can give you an accurate fixed price rather than a hopeful estimate. That is the whole point of a design-and-build process where one team carries the job from concept to handover, whether you are building in Batemans Bay or anywhere across the Eurobodalla. If you want to understand the numbers first, start with our guide to what it costs to build on the South Coast, then talk to us about a new custom home build or the planning and approvals that come before it.