Planning a custom home build?
The Victorian Rule That Catches People Off Guard
In Victoria, the Consumer Affairs Victoria guidance sets out two key thresholds:
- A major domestic building contract threshold of $10,000.
- A threshold above which cost plus contracts are permitted of $1 million.
What this means in practice: “cost plus” isn’t just a preference you can always choose for a domestic build. It’s actually constrained by the Victorian framework under the Domestic Building Contracts Act 1995.
So before you fall in love with the idea of maximum flexibility, it’s worth checking whether cost plus is even available for your project.
What Does a Fixed Price Contract Actually Mean?
A fixed price (sometimes called lump sum) contract is built around a defined scope and a defined price.
It tends to work best when:
- Your plans and specifications are developed enough for the builder to price accurately
- You want stronger budget predictability for finance approvals
- You prefer fewer “moving parts” during construction
The important catch
“Fixed price” doesn’t mean the number is set in stone forever. The contract price can still change through:
Variations – when you change something, or site conditions require a change
Allowances – placeholders for things you’ll choose later, including:
- Prime Cost (PC) items: supply items like taps, appliances, or fixtures
- Provisional Sums (PS): work where the extent isn’t fully known yet, like excavation or rock removal
Consumer Affairs Victoria specifically notes that contract price changes are only allowed in certain ways, including through variations and these allowance items.
Here’s the thing people often miss: if your allowances are set too low for your taste, you’ll “blow the budget” simply by choosing what you actually wanted all along. The contract type didn’t fail you, the planning did.
What a cost plus contract usually means
A cost plus contract typically works like this:
- You pay the actual cost of labour, materials, and subcontractors
- Plus an agreed builder’s margin or fee
- The final price moves as actual costs move
People are drawn to cost plus for the flexibility it offers when scope is genuinely uncertain. But you need a higher tolerance for ongoing budget management.
The “Good Version” of Cost Plus
If you ever go down the cost plus route, the difference between “this is working fine” and “this is a mess” comes down to reporting discipline.
Make sure you have:
- Clear definition of what counts as a cost
- How the builder’s margin is applied
- What evidence you’ll receive (invoices, timesheets, receipts)
- How approvals work before money gets spent
Without these safeguards, cost plus can feel like you’re watching money disappear with no real control.
Where Budget Blowouts Actually Come From
Here’s an uncomfortable truth: the real budget blowout risk isn’t the contract type you choose.
Most blowouts happen when scope and allowances aren’t nailed down early even on a fixed price contract.
A practical way to protect yourself is to compare quotes using a single inclusion schedule. Make sure you understand the difference between allowances and variations so you’re genuinely comparing apples with apples, not apples with oranges that happen to look similar on paper.
Variations: Normal, But Only If You Plan for Them
Variations aren’t automatically bad. They’re completely normal when you change your mind or when site conditions require changes.
The stress comes from unclear rules around how they work.
Before you sign anything, make sure you understand:
- How a variation is requested and approved
- How the price gets calculated
- What happens to the timeline when a variation is approved
It’s also worth remembering a point we emphasise repeatedly: getting the design right upfront helps you avoid rework, variations, and budget blowouts. This applies regardless of which contract type you choose.
Which Contract Suits Most Melbourne Custom Home Builds?
This is the classic “it depends” question, but here’s a practical guide.
| Fixed price tends to suit you if… | Cost plus might suit you if… |
| you have developed plans (or can get them developed before build start) | the scope is genuinely uncertain (more common in heavy renovations than new builds) |
| you want finance-friendly certainty | you want maximum flexibility while things are being resolved |
| you want fewer ongoing pricing decisions during construction | you’re comfortable monitoring cost reports and making frequent approvals |
| you’re building new and can reasonably define scope early | and it’s actually permissible under the Victorian rules for your project value/type |
Why “fixed price” can still feel unpredictable
Even with a fixed price contract, Melbourne custom homes can have pressure points that create changes:
- Tight access sites in the inner suburbs
- Complex structural design – big spans, cantilevers, detailed facades
- Higher-end joinery and finishes where allowances must actually match your taste
- Site conditions like sloping blocks, reactive clay, or excavation complexity
Design complexity, finish level, and site conditions (including sloping blocks and tight inner-city access) can materially increase build costs. These aren’t “extras”, they’re realities of building quality custom homes in Melbourne.
A Quick Decision Framework You Can Actually Use
Ask yourself these five questions:
- Are plans/specs developed enough to price accurately?
If yes, fixed price becomes more realistic. - How likely are you to change your mind mid-build?
If high, you need a strong variation process (either way). - Do you prefer certainty or transparency?
Fixed price = more certainty.
Cost plus = more transparency into actual costs (but less certainty). - Are allowances realistic for your taste?
Low allowances can make any contract feel like it’s “blowing out.” - Is cost plus even an option under Victoria’s framework for your project?
Check the Victorian thresholds and rules early.
Questions to ask any custom builder before you sign
These questions keep it practical and prevent misunderstandings later:
- What’s included, and what’s excluded?
- Can you provide an inclusion schedule that matches my finish level?
- Which items are PC/PS, and why?
- How do variations work (approval, markup, time impact)?
- What decisions do you need from me before the site starts to protect the price and timeline?
- What’s the expected build timeframe for a project like mine?
This “clarity first” approach, especially around allowances and quote comparability, is what protects you from nasty surprises.
Where we fit in
At Pascon, we’re a Melbourne-based construction company delivering high-quality projects across Victoria. We specialise in highly specified and architecturally designed residential dwellings, the kind of homes where details matter.
If you’re weighing contract structures, the most useful next step is to discuss:
- how your scope will be documented
- how selections and allowances will be set
- how variation approvals will be handled so you stay in control
Contract FAQs for Melbourne Custom Homes
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Can a fixed price contract still increase?
Yes. In Victoria, the contract price can change through approved variations and through allowances such as prime cost and provisional sum items.
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Is cost plus always cheaper?
Not necessarily. It may reduce “pricing in risk,” but costs can drift without tight scope control and clear reporting.
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When is cost plus allowed in Victoria?
It’s only permitted in limited circumstances and is generally tied to the contract value meeting the Victorian threshold for cost plus use.
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What are prime cost items and provisional sums?
They’re allowances. Prime cost items are placeholders for items you select later, while provisional sums cover work where the exact cost can’t be confirmed upfront.
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How do I reduce variations during a custom build?
Lock in plans and selections early, make sure the inclusion schedule matches your finish level, and confirm the variation process (including markup and time impact) in writing.
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What matters most for avoiding budget surprises?
A realistic inclusion schedule, sensible allowances, and a clear variation process regardless of contract type.
Start your project with Pascon
Share your site details, priorities and budget range. We’ll outline the right next steps, realistic costs and a clear timeline.
