Cost overrun
A cost overrun is spend above the contract price. Under lump-sum the builder wears it (except variations and PC/PS); under cost-plus the client carries it.
Ask Chalkline about this →A cost overrun is expenditure above the agreed contract price: the project ends up costing more than the contract said it would. Who wears the overrun depends entirely on the contract type, which is the single most important thing to understand about it.
Under a lump-sum (fixed-price) contract, the builder agrees a fixed price and wears any cost overrun: if materials or labour cost more than the builder estimated, that comes out of the builder’s margin, not the client’s pocket. The only exceptions are authorised variations (a change the client signed off) and PC/PS adjustments (where the actual cost of an allowance item legitimately exceeds the estimate). Everything else is the builder’s risk, which is why accurate estimating and a tight scope matter so much on a fixed-price job.
Under a cost-plus contract, the client pays the actual cost of the work plus the builder’s margin, so the client carries the overruns. Cost-plus shifts the cost risk to the client in exchange for transparency and flexibility, which is why it suits hard-to-price work (heritage, complex renovations) but exposes the client to an open-ended final figure.
For a builder the practical point is to know which risk you are carrying before you price the job. On fixed-price, an overrun that is not a variation or a PC/PS excess is yours to absorb, so do not start work outside the contracted scope without a signed variation, and reconcile PC/PS items properly. On cost-plus, keep clean cost records, because the client is paying actuals and will scrutinise them. See HIA fixed-price and reading a building contract.
Also known as: Cost blowout, budget overrun, cost escalation.
Category: Contracts / Cost and pricing.
Related
See also
References
- HIA: Contracts Online (fixed-price and cost-plus) (verified 2026-05-09)
- NSW Fair Trading: Guide to home building contracts (verified 2026-05-09)
Last updated: 2026-05-30. Verified: 2026-05-09. Quarterly review for currency.