When planning a new home or renovation, the contract you sign with your builder is just as important as the design itself. The type of contract determines not only how much you’ll pay, but also how risks, changes, and surprises are handled throughout the project.
Two of the most common contract types in residential construction are Fixed Price and Cost Plus contracts. Each comes with its benefits and drawbacks — and the right choice depends on your project, your budget, and your appetite for risk.
What Is a Fixed Price Contract?
A Fixed Price Contract sets one agreed sum for the entire project. Once the design, scope of work, and inclusions are locked in, your builder provides a price that covers it all.
Advantages:
- Budget certainty: You know upfront how much your project will cost, which makes financing and planning easier.
- Risk on the builder: The builder absorbs cost overruns if materials or labour increase, as long as the scope doesn’t change.
- Clear expectations: Inclusions and exclusions are outlined at the start, minimising ambiguity.
Drawbacks:
- Less flexibility: Any design changes or variations after signing will come at an added cost.
- Built-in contingency: A fixed price contract usually includes a small buffer to cover any unforeseen circumstances that may arise during the build.
- Detailed documentation required: Plans, selections, and specifications must be finalised early, which can feel overwhelming for some homeowners.
What Is a Cost Plus Contract?
A Cost Plus Contract charges you for the actual cost of materials and labour, plus a builder’s margin (a fixed percentage or fee). You pay as the project progresses, with costs tracked and reported transparently.
Advantages:
- Flexibility: Great for projects where the scope isn’t fully defined or may evolve during construction.
- Faster start times: Work can often commence sooner, as the builder doesn’t need to finalise every detail or obtain dozens of fixed quotes before starting on site.
- Adaptability to Market Changes: If material costs or supply issues arise, adjustments can be made quickly and fairly based on actual costs rather than absorbing the risk in a lump sum price.
Drawbacks:
- Reduced budget certainty: With a cost-plus contract, the final cost isn’t confirmed prior to construction. The total will depend on the actual time, materials, and work needed.
- Trust in efficiency: As costs are open-ended, homeowners rely on their builder to be efficient with time and resources — making it important to choose a builder you have confidence in.
- Cash flow management: Invoices can be issued as costs are incurred, which can mean less predictability in when or how much you’ll need to pay.
Which One Should You Choose?
- Fixed Price contracts are generally best if you want cost certainty and your design scope and selections are fully completed before signing.
- Cost Plus contracts are best suited to unique builds to give you flexibility — they work best when there’s trust and open communication with your builder.
How Locspec Helps You Navigate
At Locspec, we believe the right contract should balance clarity, fairness, and trust. That’s why we guide clients through the decision-making process during our Pre-Construction Consultancy (PCE) and Locspec Consultancy Service (LCS) phases. In the LCS stage, we’ll discuss the different contract types available, along with your obligations and expectations, so you can choose the contract structure that best suits your project.
Your contract isn’t just paperwork — it’s the foundation of your build.
Want to understand which contract type suits your project? Get in touch with our team today and we’ll walk you through the best approach for your unique build.