Your building contract sets out what’s included, how payments work and how changes will be managed. Before signing, you should understand how the price is calculated and what could affect the final cost.
At Sanders, we use fixed price and cost-plus contracts depending on the project. Understanding the differences will help you choose an approach that suits your build and budget.
Fixed price contracts
A fixed price contract sets an agreed price for a clearly documented scope of work. It suits projects where the plans, specifications and selections are well resolved before construction starts.
The builder generally carries the risk of delivering that scope for the agreed amount. However, variations, adjustments to allowances and other circumstances covered by the contract can affect the final price.
Always check what’s included, what’s excluded and which items are allowances rather than confirmed prices. The more decisions you resolve upfront, the clearer your starting budget will be.
Cost-plus contracts
Under a cost-plus contract, you pay the actual costs of construction plus an agreed builder’s fee or margin.
This typically suits major renovations or complex builds where some work cannot be accurately priced before construction begins. Opening up an existing home, for example, may reveal conditions that weren’t visible during the initial assessment.
The trade-off is less certainty about the final cost. Clear records, regular reporting and timely decisions are essential to keeping the budget on track.
At Sanders, we provide visibility of trade and supplier costs, with regular updates so you can understand how spending compares with the project budget.
How we choose the right contract
We use Master Builders contracts and discuss the options with you before agreeing on the approach.
The right choice depends on how much is known about the project, how developed the documentation is and how you prefer to manage your budget. We also offer cost-plus arrangements with a fixed builder’s fee, agreed upfront rather than increasing as a percentage of construction costs.
Involving us during the design stage helps identify likely costs and construction requirements before you reach the contract stage. You can read more about our approach to early contractor involvement and a builder’s cost analysis.
How progress payments work
Your contract should clearly explain when progress claims will be issued, what they cover and when payment is due.
In NSW, contracts over $20,000 must include a progress payment schedule. Payments must reflect work carried out, with receipts or other supporting documents required for cost-plus claims.
At Sanders, we generally divide the build into at least ten progress claims, with more on larger projects. Each claim is supported by documentation showing the work completed, helping you understand what you’re paying for throughout construction.
If you’re using construction finance, check the proposed schedule with your lender before signing as their inspection and payment requirements need to work with the contract.
Deposits and insurance
In NSW, the maximum deposit for residential building work is 10% of the contract price, which counts towards your total payment.
Home Building Compensation cover is required for residential building work over $20,000, unless an exemption applies. Your builder must provide the insurance certificate before accepting any payment, including your deposit, or starting work.
What to check before signing
Take time to review the contract and ask about anything you don’t understand. These are the key areas worth checking before you commit.
- Scope and exclusions: The plans, specifications and inclusions should clearly describe the work. Check details such as materials, finishes and fixtures, along with anything you need to supply or arrange.
- Allowances: Prime cost items generally cover products yet to be selected, while provisional sums allow for work that cannot yet be accurately priced. Understand what each allowance covers and how adjustments will be calculated.
- Payment schedule: Check that claims reflect progress and that you understand the payment deadlines.
- Variations: The contract should explain how changes are priced, documented and approved, including any effect on completion dates.
- Completion and defects: Understand how completion is determined, how defects are reported and what the contract says about rectification.
- Disputes: Check the process for addressing a disagreement if one arises.
Your contractual defects liability period is separate from statutory warranties. In NSW, statutory warranties generally apply for six years for major defects and two years for other defects, from completion.
Common questions about building contracts
Can I request changes to the contract?
You can raise proposed changes before signing. Discuss them with your builder and have any agreed amendments properly documented.
Should a solicitor review my contract?
An independent solicitor experienced in NSW residential building contracts can explain your obligations, identify risks and advise on proposed amendments before you commit.
What happens if I change a selection during construction?
A change may affect material costs, ordering, completed work or the construction schedule. Discuss it with your builder first and confirm the cost and timing implications through the contract’s variation process.
Talk through the details before you commit
Understanding your contract is part of preparing for a well-managed build. We’ll explain our approach, talk through the payment schedule and answer your questions before you sign.
If you’re planning a new home or renovation on the South Coast, get in touch with our team.
This article provides general information about residential building contracts. Seek independent legal advice about your contract and circumstances before signing.