This article was written by Nancy Wang Principal Solicitor at W & G Lawyers.
A couple sits across the desk from us with a set of architect’s drawings, a builder they like, and a decision to make. The builder has offered two ways of contracting. Under the first, the builder will name a price and stand behind it. Under the second, the builder will charge whatever the work actually costs, plus a margin of 15 or 20 per cent, and has provided an “estimate” that looks reassuringly close to their budget. The builder prefers the second, and says it is fairer because nobody pays for risk that never materialises.
We see this conversation more often than we used to. Volatile material prices, trade shortages and the collapse of several well-known Queensland builders have made contractors reluctant to commit to fixed prices, and cost plus contracting — once reserved for bespoke or uncertain projects — is now being proposed for ordinary suburban homes. This article explains how Queensland law treats the two contracts differently, and why the choice matters more than most homeowners appreciate.
The statutory framework
Since 1 July 2015, domestic building contracts in Queensland have been governed by Schedule 1B of the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act), which replaced the former Domestic Building Contracts Act 2000 (Qld). Schedule 1B applies to any “regulated contract” — broadly, domestic building work priced above $3,300 — and divides those contracts into two tiers. A level 1 contract is priced between $3,300 and $20,000; a level 2 contract is priced at $20,000 or more. Almost every new home, extension and substantial renovation is a level 2 contract, and it is the level 2 rules that carry the heaviest disclosure obligations.
Section 1 of Schedule 1B defines a cost plus contract as one “under which the amount the building contractor is to receive under the contract can not be accurately calculated when the contract is entered into, even if prime cost items and provisional sums are ignored”.
That definition repays careful reading. A fixed price contract will ordinarily include prime cost items (allowances for fittings not yet selected) and provisional sums (estimates for work whose extent cannot be known until it is opened up, such as rock removal), and may provide for variations and price rises. None of those features makes it a cost plus contract. What distinguishes a cost plus contract is that, even with those allowances set aside, the amount the builder will receive cannot be calculated on the day of signing, because it depends on costs yet to be incurred.
How a fixed price contract works
Under a fixed price contract the builder agrees to deliver a defined scope of work for a stated sum, carries the risk that the work costs more than anticipated, and keeps the benefit if it costs less. The only movements away from the contract price are those the contract expressly permits: adjustment of prime cost and provisional sum allowances against actual cost, agreed variations, and any specific price-change clause.
Schedule 1B builds a substantial protective scaffold around that arrangement. For a level 2 contract, s 14 requires that a fixed price be stated “in a prominent position on the first page of the contract schedule”. Where any provision allows the price to change, s 14(6) requires a warning to that effect together with “a brief explanation of the effect of the provision”, and s 14(7) requires both to appear on the first page. A homeowner reading only the front page should be able to see the price and every way in which it might move.
Deposits are capped by s 33 at 5 per cent of the contract price for a level 2 contract (10 per cent for level 1, and 20 per cent where more than half the work is performed off site). Section 34 prohibits progress claims that are not directly related and proportionate to work done on site. Section 35 gives the owner a five-business-day cooling-off period after receiving a copy of the signed contract, and s 18 requires the builder to give the owner the QBCC’s Consumer Building Guide before a level 2 contract is signed. Variations must be in writing (ss 40–41), and Part 3 implies statutory warranties as to materials, compliance, workmanship and diligence.
The Perera decision: a “fixed” price that tried not to be
The tension between a nominally fixed price and a builder’s wish to escape it came to a head in Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99. The Pereras signed a fixed price contract for a new home at $645,370. A special condition allowed the builder to increase the price to its “current base price” if construction had not commenced by an anticipated start date, and the builder later invoked it to add more than $51,000.
Barlow KC DCJ held the special condition void on three independent grounds: it was uncertain, because it allowed the builder to change the price by reference to a “base price” the contract nowhere defined; it failed the s 14 warning requirement, because nothing on the front page explained the effect of the special condition; and it was an unfair term under the Australian Consumer Law, because it gave the builder a unilateral right to raise the price and left the owners to pay or walk away.
Perera confirms that the word “fixed” on the front page of a Queensland building contract has real legal force. It also explains why some builders have moved away from fixed price contracting altogether: a cost plus contract is, in effect, the lawful way of achieving what the special condition in Perera could not.
How a cost plus contract works
Under a cost plus contract the homeowner pays the builder the actual cost of the work — materials, labour, subcontractors, plant, often a share of overheads — plus an agreed margin, expressed as a percentage of cost or a fixed fee. The builder gives an estimate of the total, but the estimate is not the price. If the work costs more, the owner pays more. If the margin is a percentage, the builder’s profit rises in step with the cost of the project.
Schedule 1B permits cost plus contracts but does not treat them as ordinary. A cost plus contract is regulated if the total amount payable is reasonably estimated to exceed $3,300 (s 5(1)(b)), and the level 2 rules apply where that estimate is $20,000 or more. Because there is no fixed price to state on the front page, s 14(5) requires “the method for calculating [the contract price], including any allowances” to be stated in the contract schedule, and s 14(3)(e) requires the contract to include “the building contractor’s reasonable estimate”. The s 14(6) warning, deposit cap, progress payment restriction, cooling-off period, Consumer Building Guide and statutory warranties all apply.
What Schedule 1B does not do is put any ceiling on what the homeowner may ultimately have to pay. The “reasonable estimate” is a disclosure requirement, not a contractual cap. An estimate that proves wildly wrong may found an argument of misleading or deceptive conduct under s 18 of the Australian Consumer Law, but that is an argument for litigation after the money has been spent, not a right to refuse payment. The recent New South Wales decision in Fraser Lyne Constructions Pty Ltd v Waba [2025] NSWSC 600 — where a cost plus estimate of $1.1 million was later revised by the builder to $3.1 million — shows how far a cost plus project can drift, and how messy the dispute becomes when neither party has documented what was actually agreed.
The Home Warranty Scheme: the difference that decides most cases
If there is one point a homeowner should take from this article, it is this one. The Queensland Home Warranty Scheme, administered by the QBCC under Part 5 of the QBCC Act and the Queensland Building and Construction Commission Regulation 2018 (Qld), covers two broad situations: defective work, and non-completion — typically because the builder has become insolvent, died, lost its licence or been validly terminated for default.
Non-completion cover is available only for a fixed price residential contract, which Schedule 6 of the Regulation defines as one in which the price is fixed except for prime cost items, provisional sums and increases in the cost of labour, materials or delay. A cost plus contract falls outside that definition, and the QBCC states plainly on its website that “protection for non-completion under the Queensland Home Warranty Scheme is not available to home owners when these contracts are used”.
The practical consequence is stark. If a builder under a fixed price contract goes into liquidation half-way through the job, the Scheme will, subject to its conditions and caps (currently $200,000 per living unit, or $300,000 with optional additional cover), pay the reasonable cost of having a licensed contractor complete the work, less whatever the owner still holds under the original contract. If the same builder fails half-way through a cost plus job, the owner must fund completion from their own pocket and prove whatever claim they have in the liquidation. Defective work cover remains available, but non-completion is the risk that ruins families, and it is precisely the risk that cost plus contracting leaves uninsured.
The open-ended commitment
The uncertainty also matters to anyone borrowing to build: construction lenders advance funds against a contract sum and a fixed schedule of progress payments, and many decline to finance cost plus contracts at all. Even for owners funding a build from their own resources, the arithmetic is unforgiving. The QBCC reports that final costs under cost plus contracts frequently exceed the initial estimate by 50 to 100 per cent. A percentage margin gives the builder no incentive to keep costs down, and the owner rarely has the expertise or contractual tools to audit every invoice. Well-drafted cost plus contracts address this with a guaranteed maximum price, itemised invoices with each claim, a right to inspect the builder’s records, and a requirement for the owner’s approval before unbudgeted expenditure. Poorly drafted ones — and we see many — contain none of these things.
When a cost plus contract is the right choice
None of this means cost plus is never appropriate. There are projects no competent builder can price fixed: heritage restorations, structural rectification where the damage cannot be known until work begins, and architectural projects whose scope is expected to evolve. There, a fixed price simply loads the contract with contingencies the owner pays whether or not the risk eventuates, and a properly structured cost plus contract can produce a fairer outcome. The QBCC’s own position is not that cost plus contracts are unlawful, but that both parties should obtain legal advice before entering into one.
The difficulty arises when cost plus is proposed not because the project demands it but because the builder would prefer not to carry the risk of an ordinary build. For a standard new home on a level block with complete plans and a full specification, there is no structural reason a fixed price cannot be given, and a homeowner should be sceptical of a builder who says otherwise.
What the homeowner should actually do
The threads pull together into a short list of practical guidance:
- Insist on a fixed price contract for any project that can reasonably be priced. Confirm the price appears on the first page of the contract schedule, and read every clause the front-page warning identifies as capable of changing it. Treat prime cost items and provisional sums as the soft points of that price, and ask how each allowance was calculated.
- If a cost plus contract is unavoidable, negotiate a guaranteed maximum price, itemised claims with supporting invoices, a right to inspect the builder’s records, and an approval threshold for unbudgeted expenditure. Confirm the position with your lender before signing.
- Understand before signing that a cost plus contract carries no non-completion cover under the Queensland Home Warranty Scheme, and weigh that against the financial strength of the builder you are trusting with an uncapped commitment.
- Do not sign until you have received the Consumer Building Guide and a complete copy of the contract, and use the five-business-day cooling-off period to obtain advice.
The choice between cost plus and fixed price is, at bottom, a choice about who carries the risk that a project costs more than everyone hoped. Queensland’s legislation permits either allocation, but it protects the homeowner far more comprehensively under a fixed price. A builder’s assurance that cost plus is “fairer” is an assurance that the builder will be paid for every dollar spent, with a margin on top, whatever happens — and that the homeowner alone will bear the consequences if it goes wrong.
This article is general information only and does not constitute legal advice under Australian law. Building contract disputes are highly fact-sensitive and the statutory requirements summarised here contain qualifications and exceptions. For advice specific to your situation, please contact W & G Lawyers.
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Disclaimer
This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.