As the Australian construction and renovation sectors grapple with cost volatility and supply chain headaches, the humble cost-plus contract is having a moment. Once seen as niche, these agreements are now popping up in everything from home builds in Melbourne to major infrastructure projects in Queensland. But what is a cost-plus contract, how does it work in 2025, and who stands to benefit—or lose—by signing on the dotted line?
What Is a Cost-Plus Contract?
At its core, a cost-plus contract is an agreement where the client reimburses the contractor for actual costs incurred on a project, plus an agreed fee (either a fixed sum or a percentage). Unlike a fixed-price contract, where the builder shoulders the risk of cost overruns, cost-plus contracts pass those risks—along with potential savings—onto the client.
- Direct costs: Labour, materials, equipment hire, and subcontractors.
- Plus: A builder’s margin (either a fixed fee or percentage, typically 10–20%).
These contracts are especially popular when project scope is unclear, material prices are volatile, or the client wants flexibility to make changes mid-build.
2025 Policy Updates and Legal Trends
In 2025, cost-plus contracts are under closer scrutiny from regulators and industry groups. The Australian Building Codes Board and state-based consumer agencies have responded to complaints about unclear pricing and disputes over what counts as a ‘reasonable cost.’
- NSW & Victoria: Updated legislation now requires more rigorous documentation of costs, including mandatory itemised receipts for all claims above $500. Builders must provide monthly statements and allow for independent audits if requested.
- Queensland: The QBCC (Queensland Building and Construction Commission) warns homeowners to review cost-plus contracts carefully, as recent cases have seen blowouts of 30% or more above original estimates.
- National Construction Code 2025: Emphasises transparency, requiring all variations to be signed off by both parties. This is to combat ‘scope creep’—where the project expands and costs spiral.
With these changes, cost-plus contracts are now more structured, but they still demand a high level of trust and communication between client and builder.
Pros and Cons: Who Should Consider a Cost-Plus Contract?
Cost-plus contracts aren’t for everyone. They offer benefits, but also introduce unique risks. Here’s how they stack up for different types of clients:
- Homeowners: Great for custom renovations or architect-designed builds where the final scope is uncertain. But you’ll need to monitor invoices and be prepared for the budget to flex upwards.
- Developers: Suits projects where time is of the essence and design is evolving. However, lenders may require stricter oversight or capped fees to control risk.
- Government/Commercial: Useful for large infrastructure projects facing supply shocks. In 2025, many public tenders mandate open-book accounting and independent verification of costs.
Advantages:
- Flexibility to change scope or materials mid-project.
- Potential to benefit if costs come in lower than expected.
- Builders are less likely to cut corners or skimp on quality.
Drawbacks:
- Risk of cost overruns if not closely managed.
- Requires diligent record-keeping and ongoing oversight.
- Can lead to disputes over what is a ‘reasonable’ or ‘allowable’ cost.
Real-world example: In early 2025, a Melbourne family building a bespoke home under a cost-plus contract saw their budget rise by $120,000 after unforeseen site issues and a spike in steel prices. However, the builder’s transparent reporting and the family’s regular check-ins helped avoid major disputes and ensured the project finished to spec.
Tips for Navigating Cost-Plus Contracts in 2025
- Get everything in writing: Insist on a detailed schedule of rates, clear definitions of reimbursable costs, and robust variation clauses.
- Monitor costs regularly: Set up monthly reviews and request itemised statements, especially for high-value items.
- Cap the builder’s margin: Negotiate a ceiling or sliding scale for the builder’s fee to keep costs in check.
- Consider third-party oversight: For larger projects, independent quantity surveyors or project managers can keep both parties honest.
The Australian construction landscape in 2025 is anything but predictable. Cost-plus contracts, when managed well, offer a way to share risk and reward. But they’re not a blank cheque: diligence, transparency, and clear communication are essential.
