Construction Finance
What Type Of Contracts Are Required?
5 min read- Finance Guide
- Updated 2026
Quick answer
Most lenders prefer a
Fixed price building contract
with plans, specifications and progress payments clearly set out
- Preferred contract style Fixed price
- Common payment method Progress claims
- Key lender concern Cost certainty
1300 421 044
1300 421 044
Detailed explanation
The contract is the document that ties the construction loan together. It shows the lender who is doing the work, what is being built, how the price is calculated, when each payment is due and whether the build cost is reasonably controlled. Without a suitable contract, the lender may not be comfortable approving the loan or releasing progress payments.
Common contract types lenders look at
The acceptable contract structure depends on the lender, the builder and the project
- 01Fixed price building contract
- 02Preliminary works agreement
- 03Cost plus contract
- 04Construction management agreement
- 05Owner builder arrangement
- 06Variation schedule
Lenders usually want:
signed contract- detailed plans and specifications
- defined progress payment stages
- clear variation process
What the contract should cover
A lender usually expects the building contract to include:
-
Fixed price or a clearly stated pricing method
-
Builder name, licence details and contract parties
-
Progress payment stages linked to real building milestones
-
Plans, specifications, inclusions and any allowances
-
Rules for variations, delays and practical completion
Contract preference
-
Best accepted
Fixed price
-
Sometimes accepted
Preliminaries only
-
Higher risk
Cost plus
How approval works
Lenders review
signed fixed price building contract where possible- builder credentials and licence
- approved plans and specifications
- progress payment schedule
- allowances, prime cost items and provisional sums
- variation clauses and completion timing
- borrower income, equity and contingency position
Typical timeframes
-
Preferred contract
Fixed price
-
Progress claims
Stage based
-
Higher caution
Cost plus
-
Critical support docs
Plans and specs
Need Help with your Project?
Common problems
Contract issues are one of the main reasons construction finance slows down. Problems usually come from unclear pricing, weak documentation or contract terms that give the lender too little certainty.
Contract is not fixed price
A cost plus or loosely priced contract can make the lender worry about overruns and funding gaps.
Possible solutions include:
move to a fixed price contract where possible- show stronger contingency funds
- use extra equity to reduce risk
- choose a lender comfortable with the structure
Plans and specifications are incomplete
If inclusions, finishes or scope are vague, the lender may doubt the contract price and the end value.
Possible solutions include:
- finalise plans before submission
- add full specifications and inclusions
- reduce provisional sums where possible
- align the contract with the valuation brief
Variation and payment terms are weak
Poorly drafted variation clauses or payment schedules can create disputes and interrupt progress drawdowns.
Possible solutions include:
- link payments to real completed stages
- document every variation clearly
- avoid large advance payments
- have the contract reviewed before lodging
Steps to get Finance
Step
01
Choose the builder and settle the contract structure.
Step
02
Prepare plans, specifications and the payment schedule.
Step
03
Check the contract price, allowances and variation terms.
Step
04
Submit the signed contract with builder and borrower documents.
Step
05
The lender reviews the contract, valuation and drawdown structure.
Step
06
Construction funding is released against compliant progress claims.
Speak with a Construction Finance Specialist
Construction finance can vary significantly depending on the contract type, builder, price certainty, plans, specifications and the borrower's financial position.
A specialist can review your contract package and help determine which lenders may be able to fund it.
Speak with a finance specialist about your construction contract requirements
Submit the short form below and a construction finance specialist will review your contract structure, builder setup and possible funding options.
Contact Form
Your enquiry is confidential
Prefer to speak with someone directly ?
Call us to discuss about your project finance queries
Additional Questions
You may also find these questions helpful
