Building a new home or purchasing a property under construction is appealing for many buyers. It offers the opportunity to customise the design, select preferred finishes, and secure a property that meets modern standards. However, before construction begins, buyers must select the type of building contract that will govern the entire process.
The two most common structures are fixed price contracts and cost plus contracts. Each carries different financial and legal implications, and understanding these differences is essential before signing.
This guide explains how each contract works, what risks buyers should be aware of, and how legal advice can protect the buyer’s interests.
What Is a Fixed Price Building Contract?
A fixed price contract sets a predetermined price for the construction of the property. The builder agrees to complete the work for a stated amount, subject to specific exclusions or agreed variations.
This type of contract is common for house and land packages and for standard residential builds where the scope of work is clearly defined.
Advantages of a Fixed Price Contract
• Greater cost certainty for the buyer
• Clear budgeting throughout the construction period
• Limited exposure to price fluctuations in materials and labour
Limitations Buyers Should Understand
Although the price is fixed, the contract may still allow:
• Variations requested by the buyer
• Adjustments for latent conditions, such as unexpected ground issues
• Price increases where provisional sums or prime cost items are inaccurate
Buyers should carefully review these clauses to understand when the final price can change.
What Is a Cost Plus Building Contract?
A cost plus contract requires the buyer to pay the actual cost of labour and materials, plus an agreed percentage or fee to the builder. This arrangement is more flexible but also carries more financial uncertainty.
Cost plus contracts are often used where the scope of work is uncertain or where detailed plans are not finalised at the start of the project.
Advantages of a Cost Plus Contract
• Flexibility during design and construction
• Easier accommodation of changes or unexpected conditions
• Potential cost savings if the build progresses efficiently
Limitations Buyers Should Understand
Buyers should be aware of the following risks:
• Difficulty predicting the final cost of the build
• Exposure to rising material or labour costs
• Greater administrative involvement in reviewing invoices and claims
Without careful oversight, the total cost may significantly exceed initial expectations.
Key Contract Terms Buyers Should Review
Whether the contract is fixed price or cost plus, certain clauses require close attention:
• Detailed plans and specifications that describe the work
• How variations are approved and priced
• Timeframes for completion and extension rights
• Payment schedules and requirements for progress claims
• Inclusions, exclusions, and provisional sums
• Insurance protections, including home warranty insurance
• Processes for dispute resolution
A property lawyer can review these provisions to ensure that the buyer’s risks are identified and managed from the outset.
Legal Considerations for Buyers
A building contract has long-term consequences. It governs ownership rights, timelines, payment obligations, and the builder’s responsibilities. Buyers should understand:
• Who owns the plans and intellectual property
• How defects will be handled after completion
• What security the builder can claim over the property
• How delays will affect financing or settlement
Legal review is essential, particularly where large financial commitments are involved.
How a Property Lawyer Supports the Process
A property lawyer can assist buyers by:
• Reviewing the building contract and highlighting risks
• Explaining payment structures and timelines
• Advising on variation procedures and cost protections
• Assessing disclosure documents and approvals
• Providing guidance on dispute avoidance and resolution if issues arise
This support ensures that buyers enter the construction period with clarity and confidence.
Final Thoughts
Choosing between a fixed price and cost plus building contract is an important decision that affects the entire construction journey. Buyers should understand how each structure works, what risks exist, and what protections they can put in place.
With the right contract and accurate legal advice, buyers can move forward knowing that their interests are safeguarded throughout the build.