Cost-plus contracts are permitted above the $1 million threshold, but a builder cannot use that method for a contract below $1 million—even if the job otherwise meets the major domestic building contract threshold. Consumer Affairs Victoria’s guidance, dated 8 July 2025, identifies $10,000 as the major-contract threshold and $1 million as the threshold above which cost-plus contracts are permitted; figures checked 1 October 2026. There is one narrow exception: an existing-house renovation may use cost-plus pricing only for investigative work needed to establish the contract price.
This is general information, not financial or legal advice. Check the regulator page and the Product Disclosure Statement for any insurance policy you rely on.
Does the $10,000 major-contract threshold allow cost-plus pricing?
No. The major-contract threshold and the cost-plus threshold answer different questions. A job can meet the major domestic building contract threshold while remaining below the amount above which cost-plus contracts are permitted.
| Contract question | Consumer Affairs Victoria position |
|---|---|
| When is the work a major domestic building contract? | The threshold amount is $10,000. |
| When is cost-plus pricing permitted? | $1 million is the threshold above which it is permitted; below $1 million, a cost-plus method must not be used. |
| Is there an exception? | Cost-plus pricing may cover only qualifying investigative work during an existing-house renovation. |
Calling the job a major building contract does not override the separate cost-plus restriction.
What example does Consumer Affairs Victoria give for cost-plus?
The regulator gives charging by the hour without providing a fixed contract price as an example of a cost-plus method. For a contract below $1 million, that arrangement cannot be used.
The issue is therefore not simply the label placed in the contract. The payment method must be checked against the applicable threshold.
Is there an exception for renovating an existing house?
Yes, but it is deliberately narrow. All parts of the exception must apply:
- The project must involve renovating an existing house.
- Cost-plus pricing may cover only the investigative work required to establish the contract price.
- Even then, the builder must give the client a fair and reasonable estimate of the total amount likely to be received.
- The builder must then enter into a fixed-price contract with the client for the remaining work.
The exception does not allow the remaining renovation work to continue under a cost-plus arrangement.
Is a “rise and fall” clause the same as cost-plus?
No. Consumer Affairs Victoria treats a cost escalation or “rise and fall” clause separately from a cost-plus payment method. Its guidance says such a clause is permitted only where the contract price is more than $500,000 and requires approval from the Director of Consumer Affairs Victoria. The guidance also states that no cost escalation clauses had been approved at the check date.
A rise-and-fall clause does not create permission to use cost-plus pricing below $1 million.
What must the fixed-price contract contain?
Replacing the investigative stage with a fixed-price contract does not remove the other requirements for a major domestic building contract. The contract must:
- Be in writing and written in clear English.
- Set out all its terms and give detailed descriptions of the work.
- State the parties’ names and addresses.
- State the builder’s registration number as shown on the registration certificate.
- State the contract price, deposit and progress payments as required by law.
- State its effective date, which is the date on which both parties signed it.
- Give clear advice about the five-day cooling-off period.
- Include definitions, implied warranties and the Approved checklist.
- Avoid a compulsory arbitration clause, a caveat over the building-site land, and any waiver or negation of implied warranties.
The builder must also give the client a copy of the Domestic Building Consumer Guide before the client signs.
What should be confirmed before offering the contract?
Before offering the contract, the builder should confirm the registration, site and scope requirements that affect the job:
- Confirm Building and Plumbing Commission registration when the contract is more than $10,000, or when the work involves restumping, reblocking, demolishing or removing a home regardless of its value.
- Confirm that the site is suitable for the works and satisfy yourself that the foundation data is accurate.
- Confirm that required building or planning permits are in place, or state in the contract how they will be obtained.
- Define the work, the client’s special requirements and finishes in the contract, plans or specifications.
- Clearly identify fixtures and fittings of unknown price as provisional sum or prime cost items.
- For work worth more than $16,000 on the client’s property, provide the certificate of currency for the applicable domestic building insurance.
Sources
FAQ
Can a contract be major but still be too small for cost-plus pricing?
Yes. The $10,000 major-contract threshold is separate from the $1 million cost-plus threshold, so a project can meet the first threshold and remain prohibited from using ordinary cost-plus pricing.
What is Consumer Affairs Victoria’s example of a cost-plus method?
Charging by the hour without giving the client a fixed contract price is the example identified by the regulator.
Can cost-plus pricing cover the whole renovation?
No. It may cover only the investigative work required to establish the contract price when renovating an existing house. The remaining work must be covered by a fixed-price contract.
Must the builder provide an estimate during the investigative work?
Yes. The builder must provide a fair and reasonable estimate of the total amount likely to be received, even while using cost-plus pricing for the investigation.
Does a “rise and fall” clause allow cost-plus pricing?
No. It is a separate contract clause with its own price threshold and approval requirement. It does not authorise cost-plus pricing below $1 million.
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