Knowledge · Contracts
The pricing structure decides
who carries which risk.
A building contract can be structured in several ways, and the structure is not a formality, it decides who carries the risk of the job costing more than expected, and in one case who carries the design. This is the reference for the pricing structures used in Australian residential building, lump sum to guaranteed maximum price, and how to match one to a job.
01 / Overview
Structure is about risk, not paperwork
A building contract type is the pricing structure the job is run under, the way the money works and, underneath that, who carries the risk of the job costing more than expected. It is a separate decision from which standard-form document is used, the HIA or Master Builders suite, and separate again from the trade the builder does. A job has to answer both, which structure, and which document implements it.
The structures sit on a spectrum of risk. At one end, a lump sum puts the cost risk squarely on the builder. At the other, cost plus puts it on the client. In between and around them sit schedule of rates, guaranteed maximum price and design and construct, each allocating cost, quantity or design risk differently. Choosing well means matching the structure to how well the scope can be defined and who is best placed to carry each risk, which is the same logic set out in detail for the two most common structures in fixed price vs cost plus.
Why it matters
The wrong structure creates predictable trouble. A lump sum on a genuinely undefinable scope forces the builder to either load it with contingency or wear the overruns. Cost plus on a definable scope hands the client an open-ended bill. A design and construct taken on without pricing the design risk turns a construction margin into a design liability. The structure is one of the earliest decisions on a job and one of the most consequential, and in Australia it is partly constrained by law.
02 / The structures
The five pricing structures
These are the structures a residential job is commonly run under. Most new homes use the first; the others answer specific situations where a fixed price either does not fit or does not serve the client.
Lump sum (fixed price)
A single contract sum for a defined scope. The builder carries the risk of the work costing more than the price, and the sum moves only through variations and allowance adjustments. The most common residential structure, and the one clients understand, because it gives them a fixed number. It needs a scope complete enough to price with confidence.
Cost plus
The client pays the actual cost of the work plus the builder’s fee or margin, so the client carries the cost risk. It suits genuinely undefinable scope, complex renovations, heritage, or a job that must start before it is designed. It runs open-book and demands high trust, and several Australian jurisdictions restrict or condition its use for residential work.
Design and construct
The builder takes responsibility for both the design and the construction under one contract, rather than building to a design the client’s architect produced. It gives the client a single point of responsibility and can compress the programme, but it shifts design risk onto the builder, who must price and carry the consequences of the design decisions.
Schedule of rates
The work is priced as agreed rates per unit of work, and the final cost depends on the quantities actually done. It suits work where the scope is known in kind but not in quantity, some renovation and repair work for example, and it moves quantity risk to the client while keeping the unit pricing fixed.
Guaranteed maximum price
A cost-plus arrangement with a cap, the client pays actual cost plus fee, but only up to an agreed ceiling the builder cannot exceed without justification. It tries to blend the transparency of cost plus with the certainty of a fixed price, and it is more common on larger or more complex residential work than on a standard project home.
03 / Choosing
Matching the structure to the job
The structure should follow two questions, how well can the scope be defined, and who is best placed to carry the risk that cannot be. A scope that can be fully drawn and specified supports a lump sum, and most clients want one. A scope that genuinely cannot be pinned down, because it is behind a wall or not yet designed, points to cost plus, a schedule of rates, or a guaranteed maximum price, depending on whether it is the total cost, the quantities or the ceiling that is uncertain. Where the client also wants the builder to own the design, design and construct bundles that in, at the cost of the builder carrying the design risk.
Two cautions sit over all of it. First, the structure interacts with the law, several jurisdictions restrict cost plus for residential work, so the legal position has to be confirmed before a structure is offered. Second, the allowances inside a lump sum, prime cost and provisional sums, let a builder hold a firm price on the defined parts of a job while leaving honest, adjustable allowances on the parts that are not, which is often a better answer for a residential client than moving the whole job onto cost plus. This is general information, not legal advice; confirm the current jurisdictional rules before choosing.
04 / FAQ
Common questions.
The main pricing structures are lump sum (fixed price), cost plus, design and construct, schedule of rates and guaranteed maximum price. They differ chiefly in who carries the risk that the work costs more than expected and, in the case of design and construct, who carries the risk of the design itself. Lump sum puts the cost risk on the builder and is by far the most common structure for residential work; cost plus puts it on the client and suits genuinely undefinable scope; design and construct bundles design responsibility in with construction; schedule of rates fixes unit prices but leaves quantity risk with the client; and guaranteed maximum price is cost plus with a cap. These are pricing structures, and they are separate from the standard-form family the contract is written on, such as HIA or Master Builders, which is the document that implements whichever structure is chosen.
Lump sum, by a wide margin, for new homes and most defined-scope residential work. Clients building a home almost always want a fixed price they can plan and finance around, and a builder with a complete design and specification can give them one. Cost plus and schedule of rates appear more often in renovation, heritage and repair work, where the scope genuinely cannot be pinned down up front, and design and construct and guaranteed maximum price tend to show up on larger, more complex or developer-driven residential work. The right structure is not a preference, it is a response to how well the scope can be defined and who is best placed to carry each risk, which is why an honest read of the job should drive the choice rather than habit.
They are two separate decisions that combine on every job. The contract type is the pricing structure, how the money works and who carries which risk. The standard form is the document that implements it, the HIA or Master Builders suite for example, drafted to comply with the domestic building legislation of the state. A builder chooses a structure, lump sum say, and then uses the standard-form contract designed for that structure in their state. Getting this straight avoids a common confusion, that HIA versus Master Builders is a different question from lump sum versus cost plus. The first is which document, the second is which pricing structure, and a job has to answer both.
Yes, particularly for cost plus. Domestic building legislation in several Australian jurisdictions restricts or heavily conditions cost plus contracts for residential work, on the view that an open-ended cost exposes consumers to risk they cannot manage, and the rules differ by state and change over time. This means the choice of structure is partly a legal question, not only a commercial one, and a builder cannot assume a structure permitted in one state is available in another. This is general information and not legal advice. Confirm the current position for the relevant jurisdiction before offering a particular contract type, and treat any structure other than a straightforward lump sum as worth checking against the local rules first.
05 / Keep reading
Related knowledge, guides and features
Structure the job so the risk sits in the right place.
VIABUILD builds the estimate that underpins a confident lump sum and holds the live cost record a cost plus or guaranteed maximum price job runs on, so whichever structure fits, the numbers behind it stay current and defensible.