There are two ways a residential building contract can be structured, and the difference decides who carries the risk when something costs more than expected.
Cost plus. You pay the actual cost of the work plus the builder’s margin, usually a set percentage. You do not know the final number when you sign. The builder carries almost no price risk, because whatever the work costs, you pay it plus the margin. It suits projects where the scope genuinely cannot be defined up front. It does not suit most renovations, and it is where the horror stories come from.
Fixed price. The builder commits to a total before work starts and carries the risk if the work costs more than expected. You know the number when you sign. This only works if the job has been properly scoped first, which is why a fixed price takes longer to produce.
In practice most contracts sit somewhere between the two, and where they sit is decided by how many allowances are in them.
A fixed price contract is only genuinely fixed if the work inside it has been fully scoped and priced. If it has not, the words fixed price at the top of the page do not protect you.
Here is how to check.
Find the allowance schedule
Every building contract has one, though it is not always called that. It is the list of items that carry a number but not a decision. Kitchen. Tiling. Joinery. Tapware. Site works. Landscaping.
Add up what those items represent as a share of the total. If the answer is a small percentage against genuinely undecided finishes, that is normal and manageable. If it is a large share of the contract value, the price is not fixed. It is a starting position.
Understand the three words
An allowance is a guessed price for something you have not chosen. A provisional sum is a guessed price for work not fully scoped. A prime cost item is a set amount for a product picked later.
None of these means a builder is being dishonest. They exist because a contract sometimes has to be signed before every decision is made. The problem is when they are used to make a quote look competitive rather than to handle genuine uncertainty.
Ask the three questions that matter
For each allowance, ask what it is based on. A number pulled from a previous job on a different house is a guess. A number from an actual supplier quote for your actual selection is a price.
Ask what happens when an allowance is exceeded. Specifically: do you approve the extra before the work is done, or find out at the next progress claim.
Ask what would have to happen for the total to change. A builder who can answer that clearly has thought about it. A builder who says it will not change has not read their own contract.
What we do instead
We scope the job properly before we price it. That means investigating the house, settling the selections that drive the cost, and getting real supplier prices rather than estimates. It takes longer at the front end and it is the only way to put a number on the page that still means something at handover.
For a fee of $950, you get a concept plan for your renovation and a cost estimate you can rely on, based on what’s actually in your home rather than what we assume is there.
The one test
Ask your builder to write down, in one sentence, what could make the final invoice higher than the contract price. If the answer is a short and specific list, you have a fixed price. If it is long, vague or delivered with a laugh, you have an estimate.
