Fixed-⁠price building contracts: what the price leaves out

A fixed-price building contract sets a price for the work described in it. In Queensland, QBCC says domestic contracts of $20,000 or more must show the fixed price and a price-change warning on the first page of the contract schedule. Allowances for prime cost items and provisional sums can still move the final amount.

Start with the work the builder has actually agreed to do. Then separate anything left out, amounts that are only allowances and changes you might make later. Those are the places I would check before treating the price on the front page as your budget.

There are three different reasons you might spend more than the headline price:

• Excluded costs: work or expenses the contract does not cover, such as a driveway, utility connections or rent during the build.
• Allowances: amounts already included for items or work whose final cost is not yet known. The contract sets how they are adjusted.
• Later changes: work or selections you change after signing. Check the price and funding before agreeing to a variation.

A prime-cost item is something like tiles, tapware or an appliance that hasn't been selected, or whose price isn't known, when you sign. A provisional sum is the builder's estimate for work it can't price yet, such as rock removal. For both, check how your contract adjusts the price and whether the builder can add a margin to any increase.

These are common categories, not a reading of your contract. Have a solicitor review the legal effect of the agreement and use building advice for scope, pricing and completed work.

A fixed price can still change where the contract and applicable law allow it. Ask your solicitor to explain the price-change warning and the clauses it refers to before you sign. If the builder later asks for more money, ask for the reason, the amount and the contract provision they are relying on.

Check any price-validity or start-date condition, delay provision and site-condition clause. Rising material costs do not, by themselves, tell you whether your builder is entitled to charge you more. That depends on your agreement and the rules that apply to it. Get advice before accepting or refusing a disputed increase.

Put the full contract, plans and specifications, inclusions and exclusions, allowance schedule and progress-payment schedule together. Add relevant site reports and quotes for work outside the contract. Your solicitor needs the agreement you will sign, and your broker needs the whole project to assess the finance.

A fixed-price contract sets a price for the specified work, subject to its terms. With a cost-plus contract, the final amount depends on the costs charged and the agreed builder's margin, so there is less certainty about the total.

Check the contract type too. QBCC warns that non-completion cover under the Queensland Home Warranty Scheme isn't available for cost plus or construction management contracts, and recommends a fixed-price contract to keep that protection.

The lender uses the agreed work, plans and payment schedule to assess the finished home and decide how it will release the construction money. Ask your broker what your chosen lender needs before you commit; the requirements differ between lenders.

Add the land, building contract and known costs outside it, then compare that total with the loan and cash available. Check the lender’s accepted finished value separately because it can limit the loan.

The example project costs $895k and has $895k in proposed loan and cash, but the lender accepts a finished value of $850k. The $45k valuation difference is not automatically a $45k cash shortfall: the extra cash needed depends on the loan the lender will actually approve.

The lender can assess the home on its accepted value rather than what you spend. If the accepted finished value is lower, the cash contribution may rise even though the builder has not increased the contract price.

If the value itself appears wrong, gather genuinely comparable sales, plans, specifications and any factual corrections before using the guide to challenge a bank valuation.

Ask when your own contribution must be used and which deposits the lender will fund. Westpac, for example, requires the agreed contribution before construction payments. For Queensland domestic contracts of $20,000 or more, the usual builder deposit limit is 5%, with a limited exception for substantial customised off-site work. That is a building-contract limit, not the lender’s required deposit.

For the full loan process, use the construction finance guide. If the land has not settled, also check how land finance and build timing fit together.

A signed variation can change the amount owed to the builder without changing the approved loan. Before signing, ask what it does to the total amount needed to finish the build, cash contribution, value and the timing of future claims.

QBCC generally requires variations to be documented and agreed in writing before the work, with a limited urgent-work exception. CommBank's guide says a variation may need a new valuation, extra borrowing means a new application, and it may refuse to pay for changes made without its approval. Ask your own lender before proceeding, including changes you plan to fund from savings.

If the build is already underway and you no longer have enough money to finish it, contact the broker or lender managing the construction loan. My guide to a build that runs over budget sets out the next steps. Work out the full amount needed to finish before signing another variation.