When Can a Victorian Building Contract Use Cost-Plus or Rise-and-Fall Terms?

Consumer Affairs Victoria’s Preparing a major domestic building contract guidance, dated 8 July 2025, identifies $1 million as the threshold above which cost-plus contracts are permitted and says a cost-plus method must not be used below $1 million. It permits a cost escalation or “rise and fall” clause only when the contract price is more than $500,000 and the Director of Consumer Affairs Victoria has approved the clause. The guidance says the Director had not approved any cost escalation clauses; figures checked 1 October 2026.

How do the two price thresholds differ?

The tests apply to different pricing methods and must be considered separately.

A contract price over $500,000 does not remove the separate cost-plus prohibition below $1 million. Likewise, being over the rise-and-fall price threshold does not replace the requirement for Director approval.

What is the narrow cost-plus exception?

Consumer Affairs Victoria says a cost-plus contract can be used when renovating an existing house, but only to cover investigative work required to establish the contract price.

That arrangement must include:

• a scope limited to the investigation needed to establish the contract price;
• a fair and reasonable estimate of the total amount likely to be received; and
• a fixed-price contract with the client for the remaining work.

Charging by the hour without a fixed contract price is the guidance’s example of a cost-plus method. The investigative exception does not allow the main renovation or all remaining work to continue on that basis.

Does a price over $500,000 automatically allow a rise-and-fall clause?

No. The contract price and Director approval are separate requirements. The price threshold is necessary but does not make the clause approved by itself.

The guidance reviewed for this article says the Director had not approved any cost escalation clauses. A builder should therefore check the Consumer Affairs Victoria page for any changed approval position before including a rise-and-fall clause, rather than relying on the price threshold alone.

Separately, the guidance says builders must calculate into the contract price any likely rise in costs caused by inflation, wage increases and the like. That requirement still needs to be addressed when preparing the contract.

What should builders check before offering the contract?

Consumer Affairs Victoria identifies $10,000 as the threshold amount for a major domestic building contract. Before offering the contract, builders should check the following:

• Registration: Confirm Building and Plumbing Commission registration when the contract is more than $10,000, or when the work involves restumping, reblocking, demolishing or removing a home regardless of its value.
• Required contract content: Put the contract in writing and clear English. Set out all terms, detailed work descriptions, the parties’ names and addresses, the builder’s registration number, contract price, legally required deposit and progress payments, and the effective date.
• Consumer information: Give the client the Domestic Building Consumer Guide before signing. Include clear advice about the five-day cooling-off period; the cooling-off clause is required for contracts over $10,000.
• Other mandatory wording: Define key words and phrases, set out implied warranties and contain the Approved checklist.
• Insurance information: For work worth more than $16,000 on the client’s property, provide the certificate of currency for the applicable domestic building insurance.
• Scope and site checks: Confirm the site is suitable and the foundation data is accurate. Address required building or planning permits, client requirements and finishes, plans and specifications, variations, start and finish dates, delays and extensions of time.
• Prohibited items: Do not include compulsory arbitration, a caveat over the building-site land, or a waiver or negation of implied warranties.
• Pricing structure: Test the proposed cost-plus or rise-and-fall clause against its own threshold and approval requirement.

This is general information, not financial or legal advice. Check the Consumer Affairs Victoria regulator page for the current contract rules and the relevant policy’s Product Disclosure Statement for insurance terms.

Sources

• Consumer Affairs Victoria — Preparing a major domestic building contract

FAQ

What is a cost-plus method?

Consumer Affairs Victoria gives charging by the hour without a fixed contract price as an example. A cost-plus method must not be used for a contract below $1 million, apart from the narrow investigative-work situation described above.

Can cost-plus cover an existing-house renovation?

Only the investigative work needed to establish the contract price. The builder must provide a fair and reasonable estimate and then enter into a fixed-price contract for the remaining work.

Is a contract price over $500,000 enough to include a rise-and-fall clause?

No. The contract price must be more than $500,000, and the Director of Consumer Affairs Victoria must approve the clause. The reviewed guidance reports that no cost escalation clauses had been approved.

Should a builder rely on these thresholds when signing a contract?

No. Check the current Consumer Affairs Victoria regulator page and obtain appropriate legal advice if the contract structure is unclear. For insurance requirements, check the relevant policy’s PDS as well.