Cost Plus Contracts for ACT Residential Building Work

What it is

Under a cost plus contract the owner pays the actual cost of the work plus an agreed margin, instead of a price fixed at signing. It suits jobs whose scope genuinely cannot be priced: heritage work, fire rebuilds, renovations behind unopened walls.

It also moves the entire price risk onto the owner, which is why most states legislate when it may be used. The ACT is not one of them.

Cost plus is lawful in the ACT because nothing says otherwise

There is no cost plus provision in the Building Act 2004 (ACT). No prohibition, no dollar threshold, no restriction to particular kinds of work, no precondition. Part 6, the residential contract part, imposes no payment structure rules of any sort: no deposit cap, no stage payment rules and no rule about when money may be claimed. The Building (General) Regulation 2008 (ACT) adds no cost plus rule either.

Section 89C would be the place for it. That section lets a regulation prescribe standard conditions for a residential building work contract, and none has ever been made. So cost plus may be used for ACT residential building work of any value, for any kind of work, with no statutory gateway to pass.

This is a negative finding, and it is the answer. Do not import a threshold from another state.

The rules that do apply

Silence on pricing is not silence on everything. Once the cost of the residential building work reaches $12,000, Part 6 applies and it applies the same way it would to a fixed price job:

• the s 88 statutory warranties bite regardless of how the job is priced. Proper and skilful work, good and proper materials and fitness for a made-known purpose are not diluted by a cost plus model, and a builder cannot invoice their own defective work as a cost
• insurance is triggered by the cost of the work and the building type, not by the pricing structure. A cost plus job needs the same cover a fixed price job needs
• section 89D makes it a strict liability offence, carrying up to 10 penalty units, to enter a residential building work contract without the required documents attached. Reg 38A prescribes whatever document the Minister determines, and no determination has been made, so there is no required document to attach and the offence currently has nothing to bite on. Do not treat this as a live paperwork obligation, and do check whether a determination has since been notified
• the one prescribed prohibited condition still applies, so a term letting anyone but the landowner appoint or revoke a certifier is void
• the unfair contract terms regime in the Australian Consumer Law reaches the cost definition and the margin clause, which on a cost plus job are the terms most exposed

The insurance wrinkle cost plus creates

Section 90 (1) (b) requires a complying policy to provide cover of at least the prescribed amount, or the cost of the work, whichever is less, for each dwelling. The prescribed amount is $200,000.

On a fixed price job the cost of the work is known at signing. On a cost plus job it is not, and the builder still has to have the cover in place before work starts. Where the final cost lands under $200,000 the cover is the cost of the work, not the cap. And cost blowouts are not an insured event in any case: the ACT triggers are insolvency, death and disappearance only.

What a compliant ACT arrangement has to do

The contract carries all of it:

• define cost exhaustively, and say what is excluded, particularly rectification of the builder's own defective work
• state the margin and the base it applies to
• require invoices or receipts before any claim is paid
• give a written estimate and a mechanism for reporting actual spend against it
• deal with GST on both the cost and the margin

ACT Government guidance makes the consumer point bluntly: quotes based on an hourly rate plus costs do not guarantee a set price. Write the contract so the owner cannot say they were never told.

How the states actually differ

This is where the value sits, because the positions are not close:

• NSW expressly authorises it. Section 8A (2) (b) of the Home Building Act 1989 permits a progress payment for labour and materials for work already performed or costs already incurred, which may include the addition of a margin, supported by invoices or receipts. That express authorisation is what makes cost plus lawful there
• Victoria restricts it to contracts of $1,000,000 or more, or to certain renovation work
• Queensland has no cost plus prohibition
• WA excludes cost plus from the definition of a home building work contract, so the deposit cap and progress payment rules do not reach it, and WA cost plus gets narrower insurance with no deposit cover and no non-completion cover
• ACT legislates none of it

The ACT sits closest to Queensland. The difference is that the ACT never built the surrounding contract rules either, so there is less to fall back on. Silence is not permission to be sloppy. It just means the contract is doing the work alone.