Fixed-price versus cost-plus building contracts

Owners are sold a morality play. Fixed price is supposed to be the grown-up contract; cost-plus is supposed to be how builders print money. The Brisbane jobs that go badly are usually more boring than that. A "fixed" price with a fat list of allowances is an estimate wearing a suit. A cost-plus job with open books, a written margin and a client who can say no is sometimes the only adult way to build on dirt nobody has opened yet.

The Queensland market runs on two families of paper: the Housing Industry Association forms used by a great many project builders, and the Master Builders Queensland forms used by a mix of members, plus the QBCC's own new-home template. None of them magically make a number safe. They allocate risk. Your job is to see which risks you just bought. The contract type is the machinery. The machinery is not the budget.

What "fixed price" is allowed to mean

A fixed-price domestic building contract in Queensland is a promise to deliver the work described in the plans and specification for a stated sum, subject to the things the contract itself says can change that sum. Those things are not loopholes invented by a clever estimator. They are printed in the schedule: prime-cost items, provisional sums, variations, delay costs, and — on many jobs signed since the last supply shock — rise-and-fall or delayed-commencement clauses.

Schedule 1B of the Queensland Building and Construction Commission Act 1991 requires a regulated contract to say whether the price is fixed and, if it is not, how the price will be worked out. It also requires a warning about provisions that may alter the price. Owners skip the warning because it looks like furniture. It is the only honest sentence on page one.

A fixed price is a good tool when the house is a known product on a known lot: a project home on a prepared estate pad, selections already locked, soil classified, no rock lottery, no neighbour who will later discover a view. It is a poor tool when the drawing is still a mood and the ground is still a rumour.

Rise and fall, and the delayed start that acts like one

Rise and fall is a cost-adjustment formula. Labour and selected materials are allowed to move with an index, or with actual invoices, after a date. Old Queensland contracts used it as a matter of course. It went out of fashion in the long cheap decade, then came back in plainer clothes: a clause that says the price holds only if work starts within a stated period; after that the builder may reprice.

Read that clause as if it were rise and fall, because that is what it does. If finance, approvals or your own undecided tapware push the start past the window, you no longer have the number you advertised to the bank. You have a right to renegotiate, which is a polite word for starting again.

Some forms also let the builder pass on statutory charge increases — a QBCC insurance premium movement, a council fee, a GST change. Those are usually small. The dangerous movement is the one tied to steel, concrete, imported joinery and the months you spent arguing about a butler's pantry.

If the builder will not explain the index, the basket of materials and the date from which adjustment runs, you do not have a formula. You have a permission slip.

Prime cost and provisional sums are not decorations

A prime-cost item (PC) is an allowance for a fixture or fitting not yet chosen: tapware, tiles, a cooktop, a vanity. A provisional sum (PS) is an allowance for work that cannot yet be measured: rock excavation, retaining, extra piers, a sewer diversion, connection to Urban Utilities assets that the surveyor has not quite found.

Both are holes in the fixed price. They are legitimate holes when the estimate is a serious one — a tiler's rate for a named square metreage, a rock rate with a method, a tapware allowance that would actually buy the tap shown in the display home. They are sales devices when the kitchen appliance allowance would not kit a studio flat, or when "provisional earthworks" is a shrug covering a sloping inner-city lot.

The statute and the usual HIA and Master Builders conditions require the builder to estimate allowances reasonably, to give you evidence of the actual cost, and to adjust the contract price by the difference, plus or minus the stated margin. Ask for that evidence. A tax invoice is a document. A verbal "it came in a bit over" is a request for a gift.

Watch the margin. Some forms apply a percentage to the over-run only; some apply it to the whole actual cost. The second version is how a modest tile upgrade becomes a second holiday for the office.

If PC and PS items add up to more than a thin slice of the contract, you are not looking at a fixed-price job. You are looking at a cost-plus job that has not had the courtesy to say so. Compare the allowances against a real cost guide, not against the brochure.

Variations are how a fixed price becomes a story

Queensland law wants variations in writing, describing the work and the price, before the work is done. Urgent work and a few narrow cases are excepted. The culture of site is the opposite: a conversation at the slab edge, a thumbs-up, a later invoice.

Refuse the culture. If you want a window moved, write it. If the builder wants to swap a specified cladding because a colour has been discontinued, write the substitute and the price. A variation that "won't cost much" is the sentence that precedes a four-figure claim.

Owners also generate variations by not deciding. A project builder cannot order cabinets while you are still collecting stone samples from a warehouse in Geebung. Delay is not a free option. It is often a variation by another name, or a start-date failure that wakes the rise-and-fall clause.

The other source of variations is the ground and the council. A flood overlay that forces the floor up, a certifier who will not accept a setback, a neighbour's easement that the sales plan omitted — these are not the builder inventing work. They are the lot asserting itself. Price them before you sign if you can. If you cannot, keep a contingency that is a real percentage, not a hope.

When cost-plus is the honest contract

Cost-plus means you pay the actual cost of labour, materials and subcontractors, plus a fee. The fee is a percentage, a lump sum, or a combination. The contract is only as good as the definition of "cost" and your right to see the invoices that prove it.

It is the honest form when nobody can price the job without lying. Opening a 1920s Queenslander in a character suburb is a classic case. So is a one-off house on a site that has not been geotechnically dull. A builder who offers a tight fixed price for that work is not generous. They are guessing, and the guess will be recovered later through PC items, "unforeseen conditions" and a sour practical-completion meeting.

Cost-plus is dishonest when the labour rates are unpublished, the margin applies to the builder's own preliminaries twice, you have no audit right, and there is no mechanism to stop the job when the running total crosses a line you cannot finance. Write a notification trigger: the builder must tell you, in writing, before the projected cost exceeds a named figure. That is not distrust. It is how adults spend the largest sum of their lives.

Queensland Home Warranty Insurance still attaches to eligible residential work, but the QBCC has long warned owners that paying ahead, or using certain cost-plus and construction-management structures, can weaken the protection. Read that policy before you treat the scheme as a second wallet. Never pay more than the work in the ground is worth.

A cost-plus builder should still be licensed in the right class, with a nominee you can name. The open-book method does not forgive an unlicensed contractor.

What the HIA and Master Builders Queensland forms actually do

The industry forms are not neutral stationery. They are drafted for members who build for a living. That does not make them unfair. It makes them efficient at protecting the person who already knows the document.

On a typical HIA Queensland new-home or residential building contract you will find a contract schedule, general conditions, a list of documents that form the contract, and annexures for allowances, colour selections and special conditions. Master Builders Queensland's housing contracts follow the same logic with different clause numbers and a different voice. The QBCC new-home construction contract is plainer and is worth using as a control text: if the industry form is doing something the QBCC form would not, ask why.

Work through, in this order:

• The contract price and whether it is described as fixed.
• The warning about price-changing provisions.
• The PC and PS schedules, with quantities, not only dollars.
• Rise and fall, delayed commencement, and any right to reprice.
• The variation clause and who may sign.
• Liquidated damages if the builder is late — often set so low they are a joke, which is a choice you can refuse.
• The progress-payment table, which must stay proportionate to work on site.
• The special conditions. This is where a "fixed" job quietly stops being one.

Do not initial a special condition you cannot explain at the dinner table. That is the whole method.

How to choose the form for the job you actually have

Use a fixed-price industry contract when the house is specified tightly enough that a second builder could price the same documents and land near the same number. Use cost-plus, or a hybrid with a guaranteed maximum and an open book below that cap, when the documents cannot yet support that test.

A hybrid is not a magic third way. A guaranteed maximum that excludes rock, wet weather, selections and statutory fees is a fixed price with the interesting parts removed. If you use a cap, list what is inside it.

Owners who want a longer close reading of the clauses themselves should sit with how to read a Queensland home building contract. The present piece is only the fork in the road. The road still runs through the same institutions — the QBCC Act, the private certifier, the dirt — and the same obligation: do not let a label on the cover stand in for the schedule inside.