HIA cost-plus contract: how it works and when to use it

TL;DR

The HIA cost-plus contract pays the builder for actual costs incurred, plus a margin (percentage or fixed fee), instead of a locked-in price at signing. It suits jobs where final scope cannot be defined upfront: gut renovations, heritage work, complex extensions. In Victoria, cost-plus is only permitted for jobs over $1 million or where a substantial part of the work cannot be costed without starting (Domestic Building Contracts Act 1995 (Vic) s 13, verified 2026-05-09). In NSW, cost-plus is permitted for residential work but requires a written contract over $5,000, a deposit cap of 10%, and progress claims backed by invoices. The main risk: no budget certainty for the client, which makes finance harder and disputes more likely when cost substantiation slips.

How HIA cost-plus works

The contract has two components:

Component	What it covers
Cost of building works	Labour, materials, subcontracts, professional fees, plant hire, insurances directly related to the works
Builder’s fee (margin)	Overheads and profit. Either a fixed dollar amount or a percentage of costs. Default is 20% if not specified in the contract.

The total the client pays is the running sum of those two components, settled via regular progress claims. Neither party knows the final figure at signing. That is the defining characteristic of cost-plus.

The HIA publishes state-specific cost-plus contracts through HIA Contracts Online for NSW, WA, ACT, and other jurisdictions. Each version complies with the relevant state legislation. The contract suite is separate from the HIA fixed-price and ABIC suites.

Builder margin: percentage vs fixed fee

The HIA cost-plus contract allows either:

Percentage of costs: margin grows if costs grow. Simple to administer. Creates an incentive structure where the builder benefits from higher costs, which clients sometimes push back on.
Fixed dollar fee: agreed upfront, does not move regardless of final cost. Aligns incentives: builder has a reason to keep costs efficient.

Where a percentage is used and no figure is inserted in the contract, the HIA default is 20% of cost of works (verified 2026-05-09, per HIA cost-plus contract FAQs).

Neither structure is universally better. The choice depends on the job type and the level of trust between the parties.

Progress claims and documentation

Progress claims under a cost-plus contract must be supported by:

Invoices and receipts for all cost items
Timesheets for any directly employed labour
Subcontract payment summaries
A clear margin calculation

In NSW, the Building and Construction Industry Security of Payment Act 1999 (NSW) applies to cost-plus contracts. Payment claims must comply with the Act’s requirements, and clients have 10 business days to serve a payment schedule in response (verified 2026-05-09).

This is the most common source of disputes: incomplete or poorly organised cost substantiation. When documentation is not meticulous, payment disputes arise quickly.

State-by-state restrictions

Not all states treat cost-plus equally. This matters when choosing the contract form.

NSW

The Home Building Act 1989 (NSW) does not prohibit cost-plus for residential owner-occupied work. The key requirements are:

Written contract required for work over $5,000 (including GST), per s 7 (verified 2026-05-09, NSW Building Commission)
Maximum deposit: 10% of the contract price under s 8 of the Act (verified 2026-05-09)
Large jobs (over $20,000) require a progress payment schedule, HBCF insurance disclosure, and a 5-day cooling-off period
Progress claims must be supported by invoices, receipts, or other documentation

The HIA NSW Cost Plus Contract is designed to comply with these requirements.

Victoria

Victoria is the most restrictive jurisdiction. The Domestic Building Contracts Act 1995 (Vic) s 13, read with the Domestic Building Contracts Regulations 2017, restricts cost-plus to two scenarios only:

The estimated project value is $1 million or more, OR
The work involves renovation, restoration or refurbishment where a substantial part of the work cannot be costed without beginning it

For standard residential new builds or renovations below $1 million in Victoria, a fixed-price contract is mandatory. Cost-plus in VIC below the threshold is a compliance breach (verified 2026-05-09, lclawyers.com.au analysis of DBCA 1995).

Note: The $1 million threshold was increased from $500,000 to $1 million by the 2017 Regulations.

Western Australia

The Home Building Contracts Act 1991 (WA) does not apply to cost-plus contracts, with one exception: home indemnity insurance requirements still apply. The WA contract must be clearly titled “Cost-plus Contract” and include a statement acknowledging the parties understand the Act does not apply (verified 2026-05-09, per HIA WA cost-plus contracts guidance).

Other states (QLD, SA, TAS, NT, ACT)

HIA publishes cost-plus contracts for ACT and other jurisdictions. Each must comply with the relevant state domestic building contracts legislation. Confirm the current legislative position with HIA or a construction lawyer before signing in states not covered above.

Cost-plus vs fixed-price: when to use which

Scenario	Preferred contract type
Scope well defined, drawings complete, BOM confirmed	Fixed-price
Scope uncertain, high likelihood of variations during work	Cost-plus
Complex renovation with unknown structure behind walls	Cost-plus
Heritage work requiring progressive investigation	Cost-plus
Standard new residential build in VIC under $1m	Fixed-price (cost-plus not permitted)
High-end custom new build with client-driven design changes	Cost-plus
Client requires fixed budget for finance approval	Fixed-price

The practical reality: most banks and lenders will not finance a project on a cost-plus contract because no final cost can be certified (verified 2026-05-09, per lclawyers.com.au). If the client needs a construction loan, fixed-price is almost always the only workable option.

Common payment-claim disputes

The most frequent disputes on HIA cost-plus contracts:

1. Documentation disputes Incomplete invoices, missing receipts, or poor timesheet records. The client queries the claim, the builder cannot substantiate, payment stalls. Prevention: systematic cost capture daily, not weekly.

2. What counts as a reimbursable cost Disputes over whether certain items (site overhead, supervision time, tool depreciation) are inside the “cost of works” or supposed to be covered by the margin. The HIA contract defines this, but it requires careful drafting of the cost categories schedule.

3. Scope creep without written variations Verbal direction from the client during the build adds cost. Without a written variation under the contract’s variation clause, that cost is unenforceable. The variation clause in the HIA cost-plus contract requires written approval before the cost is incurred.

4. Estimate vs actual cost divergence The builder must provide a fair and reasonable estimate of total likely cost at signing (verified 2026-05-09, per HIA guidelines). If the final cost significantly exceeds that estimate, clients may claim misleading conduct under Australian consumer law. Err toward a conservative (higher) estimate rather than a low one to win the job.

5. Margin-on-percentage escalation When the margin is a percentage of costs and costs blow out, the client’s total exposure grows at a compounding rate. This is the scenario that generates the most acrimony. Negotiate a fixed-fee margin or a percentage cap before signing.

What can go wrong

Finance refusal: client cannot obtain a construction loan on a cost-plus contract. Job stalls.
Uncapped margin exposure: percentage margin on a cost overrun doubles the pain for the client. Results in disputes or demands to renegotiate mid-build.
Claim rejection: builder submits a progress claim without adequate invoices. Client disputes the claim, builder serves a payment claim under SOPA, adjudication triggered. The builder’s 10-15 business day adjudication process is fast, but it should not be the fallback for poor documentation.
VIC compliance breach: using a cost-plus contract for a sub-$1m residential build in Victoria is a contravention of the DBCA 1995. The non-complying builder may be unable to enforce the contract and the client may claim remedies via VCAT.
Estimate liability: a materially low estimate at signing can expose the builder to misleading and deceptive conduct claims under the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010), even when the contract clearly states costs are not fixed.

References

HIA Cost Plus Contract FAQ (Housing Industry Association) (verified 2026-05-09)
HIA Guidelines when using cost-plus contracts (Housing Industry Association) (verified 2026-05-09)
HIA Cost-Plus Contracts WA (Housing Industry Association) (verified 2026-05-09)
NSW Building Commission: Guide to providing home building contracts (verified 2026-05-09)
Home Building Act 1989 (NSW) (NSW Legislation) (verified 2026-05-09)
Domestic Building Contracts Act 1995 (Vic) (verified 2026-05-09)
Building and Construction Industry Security of Payment Act 1999 (NSW) (verified 2026-05-09)
LC Lawyers: Cost plus contracts in Victoria (industry analysis, verified 2026-05-09)