What is the difference between a “fixed price building contract” and a “cost plus” building contract?

A home owner in Victoria must have a building contract with a registered builder for any building work with a total value of over $10,000.00 or any form of “structural building works”.  So even if you are renovating your kitchen or bathroom or building a carport you must have a building contract and a building permit. There are three main organizations in Victoria that provide building contracts;

a) The Master Builders Association of Victoria – MBAV

b) The Housing Industry Association of Victoria – HIA

c) The Australian Institute of Architects – AIA


Each of these organizations offer several different building contracts (see a summary list of the different contracts below).  However, there are two main types of contracts – “Fixed Price” and Cost Plus” and the main features and benefits are as follows:

A. Fixed Price Building Contract

The building contract has a fixed lump sum price for all specified building works including the builder’s margin and G.S.T.  This is the most common and widely used form of building contract because it gives you a fixed end price to budget for. However, the fixed price can change due to building variations, time delays outside the control of the builder and any costs that have been excluded from the contract price.

Pro-tip: a fixed price contract is only as good as the plans and specifications.  If there are lots of gaps in the documentations, the contract price won’t be fixed for very long.

B. Cost Plus Building Contract

The building contract has an estimated final price based on the agreed “scope of works” which is made up of the cost of building works plus a nominated builder’s margin percentage.  Throughout the project, the builder must disclose all the building costs (i.e. provide copies of all invoices) and adds the builder’s margin on top of all costs. This type of building contract is often used if it is too difficult to establish a “fixed price” at the time of quoting due to a number of unforeseen cost items or very complex design details.  A new VBA regulation this year limits the minimum value of a “cost plus” building contract to $1.0 million dollars.

One factor that will determine which building contract you should use is if the building works and the contract are going to be administered by a registered architect.  Contracts No. 1 & 2 below (ABIC-SW and ABIC-MW) must be administered by a registered architect. The MBAV and HIA contracts do not require an architect’s involvement.



1. ABIC SW-2008 VIC (Domestic)
Used for smaller or simple residential projects valued from $50,000.00 to $3 million, with architect’s administration.

2. ABIC MW-2008 VIC (Domestic)
Used for major or complex residential projects valued from $250,000.00 to $25 million, with architect’s administration.


3. MBAV – Domestic Cost-Plus Contract
(Project cost must be over $1.0 million)

4. MBAV – Minor Works Contract
(Used for minor building works valued from $5,000.00 to $50,000.00)

5. MBAV – New Homes Contract (HC6)

6. MBAV – Home Improvements Contract (HIC5)


7. HIA – New Homes Contract

8. HIA – Alterations, Additions and Renovations Contract

9. HIA – Cost Plus Contract

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