Cost Plus Contracts: Lawfulness in Queensland

What it is

A cost plus contract is one where the amount the building contractor will receive cannot be accurately calculated when the contract is entered into, even if prime cost items and provisional sums are ignored. That is the definition in Schedule 1B section 1 of the Queensland Building and Construction Commission Act 1991. The owner pays the builder's actual costs plus a percentage or a fixed fee, which is where "cost plus 20 per cent" comes from.

Builders and owners moving into Queensland from another state routinely assume the state restricts or bans cost plus for domestic building work. It does not. There is no prohibition in Schedule 1B, and no value threshold below which cost plus is off limits.

Where the restriction is not

Part 4 of Schedule 1B is titled "Restrictions relating to contracts". It covers starting contracted services before the contract complies (section 30), foundations data (section 31), arbitration clauses (section 32), deposits (section 33) and progress payments (section 34). None of those provisions shuts cost plus out of the domestic market.

The QBCC puts it directly: cost plus and construction management contracts, though more commonly associated with commercial projects, may legally be used for domestic building work in Queensland. The regulator does not recommend them, but recommending against something is not prohibiting it.

What Schedule 1B does instead

Rather than ban cost plus, Queensland pulls it into the regulated contract regime by reference to the builder's reasonable estimate.

• Regulated contract: section 5(1)(b) catches a cost plus contract where the total amount payable for the contracted services is reasonably estimated to be more than the regulated amount. Section 1 fixes the regulated amount at $3,300.
• Level 1: section 6(1)(b) applies where that estimate is more than $3,300 but less than the level 2 amount.
• Level 2: section 7(1)(b) applies where the estimate is equal to or more than the level 2 amount. Section 45 of the QBCC Regulation 2018 prescribes that amount as $20,000.

So the estimate does the work that a fixed price does everywhere else. Understate it and the contract is classified into the wrong tier, which drags in the wrong mandatory contents and the wrong deposit cap.

What the contract must contain

Both tiers must be in writing, dated and signed by each party, and have effect only if that is done (sections 13(5) and 14(10)). Both must state the contract price or the method for calculating it, including the building contractor's reasonable estimate (sections 13(3)(e) and 14(3)(e)).

Level 2 adds the parts that bite hardest on cost plus. Section 14(5) requires that where the price is not fixed, the method for calculating it, including any allowances, must be stated in the contract schedule. Section 14(6) requires a warning plus a brief explanation of any provision allowing the price to change, and section 14(7) requires both to sit in a prominent position on the first page of the contract schedule. A cost plus contract is a price-change contract by design, so that warning is not optional.

What using it actually costs the owner

The real consequence is not illegality, it is cover. The QBCC states that assistance for non-completion under the Queensland Home Warranty Scheme is not available to homeowners where a cost plus or construction management contract is used. The owner keeps defect cover and loses the protection that matters most when a builder walks off site.

Deposits still apply. Section 33(2) reads the contract price for a cost plus contract as the estimated amount, so the caps in section 33(1) run off the estimate: 10 per cent for a level 1 regulated contract, 5 per cent for a level 2 regulated contract and 20 per cent where the value of off-site work is more than 50 per cent of the price. Maximum penalty for exceeding it is 100 penalty units.

How New South Wales differs

New South Wales legislates the mechanism rather than leaving it to drafting. Section 8A(2)(b) of the Home Building Act 1989 expressly authorises a progress payment for labour and materials in respect of work already performed or costs already incurred, which may include the addition of a margin, supported by such invoices, receipts or other documents as may be reasonably necessary, on an "as invoiced" basis. That is cost plus, named and permitted.

Queensland gets to the same commercial place by omission. The lawfulness is the same, the paperwork is not.