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Fixed-price contract

A fixed-price (lump-sum) contract sets one price at signing, with the builder carrying overrun risk except for variations, PC/PS items and rise-and-fall.

By Dan Waring. Last updated 10 June 2026. Verified 10 June 2026.

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A fixed-price contract (also called a lump-sum contract) sets a single price for the whole job at signing. The builder carries the risk that the work costs more than expected, and the owner gets price certainty. It is the default form for residential building work, and the alternative to a cost-plus contract, where the owner pays actual costs plus a margin.

“Fixed” is not absolute. The agreed price moves in situations the contract itself names:

  • Variations: changes to scope the owner asks for, or that the site forces, priced as they arise.
  • Prime cost (PC) items and provisional sums (PS): allowances for items not yet chosen or fully scoped (tapware, or excavation in unknown ground). The contract estimates them, and the final figure adjusts to the actual cost.
  • Rise-and-fall clauses: uncommon in residential work, these let the price move with cost escalation. See rise-and-fall clause.

So a fixed-price contract is really “fixed except for the adjustments the contract names”. A genuinely fixed total only holds where there are no variations and the PC/PS allowances land on budget.

For the builder the risk is real: underquote the job, or hit ground worse than allowed for (see characteristic surface movement), and the overrun comes out of margin unless a variation or PS adjustment covers it. That is why the allowances, exclusions and the variation process matter as much as the headline price.

State law shapes the form. In NSW, residential building contracts sit under the Home Building Act 1989, and the HIA fixed-price contract is a common template.

Also known as: Lump-sum contract, fixed-sum contract.

Category: Contracts / Residential.

See also

References

Last updated: 2026-06-10. Verified: 2026-06-10. Quarterly review for currency.

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