Fixed Price' Doesn't Always Mean What You Think It Does
In a volatile market, understanding exactly what is and isn't fixed in your building contract matters more than ever. Here's where movement can occur — even in a contract described as fixed price.
"Fixed price" is one of the most reassuring phrases in new home building. It's also one of the most misunderstood. Most residential building contracts do contain fixed price provisions. But every contract also contains clauses that allow for cost movement under specific circumstances — and in a volatile market, understanding where those clauses sit is more important than the headline number.
What "Fixed Price" Actually Covers
A fixed price building contract means the builder has committed to delivering the contracted scope of work for the agreed price — unless something changes. The key word is "unless."
The circumstances that allow a contract price to change are spelled out in the contract itself, and they vary. Most contracts based on HIA or Master Builders templates include provisions for cost movement in situations involving:
Provisional Sum (PS) items — these are allowances for work where the exact cost can't be confirmed at contract stage. If the actual cost comes in higher than the allowance, the difference is payable by the client. This is one of the most common mechanisms for price movement in a fixed price contract.
Prime Cost (PC) items — similar in principle to provisional sums, these cover fixtures, fittings and selections where the final cost depends on what's chosen or what's available at the time of purchase.
Latent conditions — unexpected site conditions discovered after work has begun. Rock, contamination, drainage issues that weren't apparent from the initial investigation are common examples.
Changes required by law or regulation — if building codes or energy requirements change between signing and construction, the cost of compliance may be passed on.
Variations — any changes to the agreed scope of work, whether client-initiated or required by circumstances, are typically priced as variations outside the fixed price.
What Happens When Supply Chains Are Disrupted
In periods of supply chain pressure — rising material costs, labour shortages, or global logistics disruptions — the provisions above become more relevant than they might appear in a stable market.
Provisional sums are particularly exposed in a volatile environment. An allowance set six months ago may not reflect current supply costs. And because the contract allows for the actual cost to replace the allowance, the buyer wears the difference.
Most builders aren't trying to increase prices unnecessarily. But contracts are written to manage risk, and in a challenging market that risk can shift — legally and within the terms you've already signed.
The Cancellation Question
One area buyers sometimes ask about is whether a builder can walk away from a contract if costs increase significantly. In general, there is no simple "costs have risen too much" exit clause in standard residential contracts.
However, most contracts do include termination provisions tied to inability to obtain materials, delays beyond a defined period, or force majeure events. These are narrower than people assume, but they exist — and understanding what they require and what compensation applies if they're triggered is worth knowing before you sign.
The Most Useful Thing You Can Do Right Now
If your contract is still at quote or pre-signing stage, this is the moment to slow down slightly and understand:
Which items in your contract are fixed, and which are allowances
How provisional sums and prime cost items are managed
What the variation process looks like and who approves costs
What the contract says about delays and extensions of time
Whether there are any clauses that allow for price movement beyond the scenarios above
None of this should create alarm. Most builds proceed without significant issues. But the buyers who understand their contract before signing are in a significantly stronger position than those who discover these provisions mid-build.
If you'd like a clear explanation of how your specific contract handles these areas, our independent review is designed for exactly this.
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