Fixed Price Contract: What It Really Means (And What It Doesn't)

"Fixed price contract" is one of the most misused phrases in construction. Homeowners hear it and feel protected. But a fixed price contract can still blow out — significantly — if you don't understand what the fixed price is actually fixed on.

Here's what to look for before you sign one.

What a Fixed Price Contract Guarantees

A genuine fixed price contract means the builder agrees to complete the work described in the contract for the stated amount — regardless of rising material costs, labour, or time overruns. That protection is real and valuable.

The word "described" is everything.

The Provisional Sum Problem

Most contracts include provisional sums — estimates for items that haven't been fully specified or priced at the time of signing. Common provisional sums include:

• Site works and excavation
• Electrical fit-out
• Tiling and floor coverings
• Landscaping
• Structural steel

Provisional sums are not fixed. They are estimates. When the actual cost is higher — and it frequently is — the difference becomes a variation on your contract. A contract with $150,000 in provisional sums is not truly fixed price.

What "Variations" Actually Are

A variation is any change to the contract scope after signing. Some variations are legitimate — you changed your mind on a finish, or something genuinely unforeseen was discovered. But many variations exist because the original contract wasn't specific enough.

Vague contracts generate variations. Detailed contracts don't.

What to Ask Before You Sign

• What provisional sums are in this contract, and what are they based on?
• What triggers a variation under this contract?
• What site conditions have been assumed, and what happens if they're different?
• Is landscaping, driveway, and fencing included?

The Simple Test

Take the contract and highlight every provisional sum and every "subject to" clause. Add those figures up. That's the variable portion of your "fixed price." If it's more than 10% of the total contract value, you don't have a fixed price — you have a starting price.