Fixed price or cost-plus? The contract type you choose shapes your entire renovation experience, from how you budget to how variations are handled when surprises emerge. This guide explains how each contract type works, the pros and cons of both approaches, and when each makes the most sense for your project. We also cover what NSW law requires in building contracts, payment schedule rules, and the key questions you should ask any builder before signing anything.
Choosing between a fixed price and cost-plus contract is one of the first big decisions you'll make in your renovation. And unlike paint colours or tap finishes, you can't change your mind halfway through.
The contract type shapes everything: how you budget, how variations work, what flexibility you have when you discover issues behind walls, and ultimately, how much trust you need in your builder.
There's no universally "better" option. The right choice depends on your project, your risk tolerance, and honestly, which builder you're working with. Most builders have a clear preference and are better at delivering one type over the other.
Here's what you need to know to make the right call for your renovation.
A fixed price contract (sometimes called lump sum) means exactly what it sounds like: you agree on a total price upfront, and that's what you pay. The builder estimates all labour, materials, and their margin, then gives you one number.
The builder provides detailed plans and specifications, prices out every element of the job, and presents a single contract amount. You pay that amount in progressive payments as the build reaches certain milestones (typically deposit, base stage, frame stage, lockup, fixing, and final).
If materials cost more than the builder estimated, or the job takes longer than planned, that's the builder's problem, not yours. You're protected from price fluctuations and project overruns.
Fixed price doesn't mean zero flexibility. Changes can still occur, but they're handled as formal variations to the contract.
Common variations include:
Each variation gets priced separately, and you approve it before the work proceeds. Good builders document these clearly. Less organised builders can use variations to claw back margin if they underpriced the original job.
Advantages:
Drawbacks:
Fixed price works best when you have comprehensive plans, all selections locked in, and a builder who prices accurately and transparently.
Cost-plus means you pay the actual cost of labour and materials, plus an agreed margin for the builder (usually a percentage or fixed fee). Instead of one lump sum, you're reimbursing real costs as they're incurred.
The builder provides an estimate of costs, but you're paying invoices as they come in. Your builder should give you:
You see exactly what everything costs. If the plumber charges $4,200, you see that invoice. If tiles cost $87/sqm, you see the receipt.
Cost-plus only works if your builder is genuinely transparent. You should have access to:
Without transparency, you're trusting blindly. And that's not a contract structure, it's a leap of faith.
In NSW, builders are legally required to keep proper records and provide documentation when requested. If a builder is cagey about showing you invoices, that's a red flag the size of the Harbour Bridge.
Advantages:
Drawbacks:
Cost-plus works best when you trust your builder completely, your scope isn't fully defined, or you're dealing with a renovation that will inevitably have surprises.
Here's the reality: renovations are messier than new builds. You're working with existing structures, hidden services, and variables you can't see until walls come down.
Best for:
Example scenario: You're renovating a 15-year-old bathroom. Plans are done, tiles are chosen, you know the layout isn't changing. There's minimal structural risk. A fixed price contract gives you certainty without much downside.
Best for:
Example scenario: You're renovating a 1920s North Shore home. You know there will be issues when walls open up. Plans are 80% done but you might adjust things once you see the space stripped back. Cost-plus gives you flexibility without constant variation battles.
Most builders have a strong preference, and for good reason. Some are excellent at estimating and thrive on fixed price. Others are better suited to transparent cost-plus relationships.
Ask your builder: "Which contract type do you typically use, and why?" Their answer tells you a lot about how they operate.
At LikeSilk Building, we typically work on a cost-plus basis for renovations. After years of seeing the unknowns that come with older homes across the North Shore, we've found it's the fairest approach for both sides. You get full transparency, we can be nimble when surprises emerge, and there's no incentive to cut corners because we're not absorbing cost overruns.
But the structure matters less than the builder you choose. A trustworthy builder on either contract type will look after you. An untrustworthy one will find ways to take advantage regardless of the paperwork.
Regardless of which contract type you choose, NSW has strict requirements under the Home Building Act. Your contract must include:
NSW Fair Trading regulates how much builders can request at each stage. For contracts over $20,000, there are caps on deposit amounts and progress payments to protect you from paying too much upfront.
For renovations and extensions, the standard payment schedule is:
Your builder must have:
You should receive proof of these before signing anything. For more details, visit NSW Fair Trading's home building contracts page.
Whether you're looking at fixed price or cost-plus, ask these questions before you commit.
The quality of the answers matters more than which contract type they're using.
Fixed price gives you certainty. Cost-plus gives you flexibility and transparency. Neither is inherently better.
What matters more is:
If you're renovating on the North Shore and want to talk through which approach suits your specific project, we're happy to help. No pressure, just honest advice about what makes sense for your situation.
We'll walk through your project, answer your questions, and help you understand what to expect—regardless of which builder you ultimately choose.
Thinking about renovating? Even if you're not entirely sure of the scope of your project yet, get in touch with us below with a few details and our licenced builder Cam will reach out to help your get started.
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