Construction Finance
Types Of Building Contracts Explained
5 min read- Finance Guide
- Updated 2026
Quick answer
Most lenders prefer a fixed price building contract
3 Common contract styles
Fixed price, cost plus and construction management are structured very differently
- Lender preference Fixed price
- Higher risk style Cost plus
- Progress payments Usually staged
- Approval impact Contract dependent
1300 421 044
1300 421 044
Detailed explanation
A building contract is one of the most important documents in a construction finance application. It explains the agreed scope of works, price or pricing method, time for completion, payment schedule, variation rules, and the responsibilities of both owner and builder. Those details directly affect whether a lender sees the project as controlled and financeable.
Main building contract types
The most common contract styles used in Australian residential building projects include:
fixed price contracts- cost plus contracts
- construction management or trade coordinated structures
- pre construction agreements for plans, permits and preliminary work
- staged progress payment schedules attached to the main contract
For standard home construction finance, fixed price contracts are usually the easiest to place with lenders because the end cost is more clearly documented.
Progress draw stages
Most construction loans follow standard stages:
- 01 Deposit
- →
- 02 Slab or base
- →
- 03 Frame
- →
- 04 Lock up
- →
- 05 Fixing
- →
- 06 Completion
At each stage:
Builder submits invoice- lender confirms stage completed
- funds paid to builder
- interest calculated on drawn balance only
Interest and repayments
What lenders usually want to see
a signed fixed price building contract for the main works- clear progress payment stages and contract sum
- licensed builder details and insurances
- approved plans, specifications and inclusions
How contract type affects approval
-
fixed price contracts are usually easiest for mainstream construction lenders to assess
-
cost plus contracts can be harder because final cost certainty is weaker
-
construction management structures may require specialist lender review or more equity
Need Help with your Project?
Common problems
Building contracts can create approval issues when the pricing model is unclear, the scope is incomplete, or the lender sees too much open ended risk in the document.
Cost plus contract not accepted
Some lenders will not accept a cost plus arrangement for a standard residential construction loan because the final price can move.
Possible solutions include:
- move to a fixed price contract if possible
- use a lender with policy for higher risk structures
- contribute more equity or contingency
- tighten the scope and documentation
Progress payments do not match the contract
If the payment schedule is vague or front loaded, the lender may not be comfortable releasing funds under the proposed structure.
Possible solutions include:
- align payments to recognised construction stages
- clarify what triggers each claim
- show a complete inclusions and specifications schedule
- use a cleaner contract form
Variations and exclusions are unclear
Contracts with weak detail around variations, provisional sums or exclusions can create disputes and lender concern about overruns.
Possible solutions include:
- define the scope in detail
- show how variations must be approved
- separate provisional items clearly
- allow for contingency funding
Steps to get Finance
Step
01
Decide which contract structure fits the project and the lender you intend to approach
Step
02
Have the builder prepare the proposed contract and supporting specifications
Step
03
Check the payment schedule, variations process and total pricing method
Step
04
Submit the contract, plans, builder details and finance application
Step
05
Obtain approval and sign the final finance and building documents
Step
06
Build under the agreed contract terms and manage any variations properly
Speak With A Construction Finance Specialist
Building contract and construction finance requirements can vary significantly depending on the project size, builder structure, pricing model and lender policy.
A specialist can review the proposed contract and help determine which lenders may be comfortable with that structure.
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