When building a new home, one of the most important decisions you’ll make is how your contract is structured.

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Most residential builds in New Zealand fall into two categories:

• Fixed Price contracts

• Cost Plus contracts

Understanding the difference is critical — because it determines who carries the risk, how costs are managed, and how predictable your final price will be.

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What is a Fixed Price Contract?

A Fixed Price contract means the builder agrees to complete the build for a set price.

The total contract price is agreed upfront — before construction begins.

 

How it works

• Builder provides a full quote

• Scope and specifications are defined

• Price is locked in (subject to variations)

 

Advantages​

• Price is locked in (subject to variations)

• Cost certainty

• You know your base build cost before starting

• Easier budgeting

• Banks and lenders prefer fixed price contracts

• Lower financial risk

• The builder carries more risk for pricing errors

 

Things to watch

Fixed price doesn’t mean “no changes”.

Costs can still increase through:

• Prime Cost (PC) allowances

• Provisional Sums (PS)

• Variations during construction

A contract with many allowances can still behave like a variable-cost build.

 

 

 

What is a Cost Plus Contract?

A Cost Plus contract means you pay the actual cost of the build, plus a builder’s margin.

There is no fixed total price at the start.

 

How it works

• You pay actual labour + materials

• Builder adds a margin (e.g. 10–20%)

• Final cost depends on actual spend

 

Advantages​

• Greater flexibility

• You can make changes during the build more easily

• Transparency (in theory)

• You see actual costs as they occur

• Useful for complex projects

• Often used where scope is uncertain

 

Risks​

• No cost certainty

• Final cost can be significantly higher than expected

• Budget control is harder

• You carry most of the financial risk

• Requires trust and discipline

• You must closely monitor costs throughout the build

 

 

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Where Most Homeowners Get Caught Out

The biggest misunderstanding is this:

A “fixed price” contract is only as fixed as its allowances.

If your quote includes:

• Low PC allowances

• High provisional sums

Your “fixed price” may still increase significantly during construction.

 

How PC and PS Fit Into This

• Fixed Price contracts often include PC and PS items

• These introduce uncertainty into an otherwise fixed contract

 

The more allowances in your contract:

• The less “fixed” your price actually is

 

Variations Apply to Both

Regardless of contract type, variations can still occur.

Common triggers:

• Upgrading finishes

• Changing design

• Site conditions differing from expectations

In both contract types, variations = additional cost.

 

 

 

Which Contract is Right for You?

Fixed Price is best if:

• You want cost certainty

• Your design is well defined

• You prefer a structured process

• You are working within a strict budget

 

Cost Plus is best if:

• Your design is still evolving

• The project is complex or high-end

• You are comfortable managing risk

• You want flexibility over cost certainty

 

Key Takeaway

It’s not just the contract type that matters — it’s how well the quote is defined.

A well-structured fixed price contract with clear inclusions:
 

How to Protect Yourself

Before signing any contract:

• Understand all PC and PS items

• Clarify what is included vs excluded

• Ask how allowances were calculated

• Minimise unknowns where possible

 

Why Comparing Quotes Properly Matters

Two builders may both offer “fixed price” contracts — but:

• One may include realistic allowances

• One may rely heavily on estimates

The second carries far more risk.

 

Compare Contracts with Confidence

Build Better helps you:

• Understand what’s fixed and what isn’t

• Compare allowances and risk

• Choose the right builder — not just the lowest price

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Build Better

Compare quotes from trusted builders

www.buildbetter.co.nz

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