Fixed price vs estimate: what fixed price should actually mean

A fixed price should mean the number does not move unless you change the scope. An estimate is an opinion about what something will probably cost. Between the 2 sits the document most people are actually given: a fixed price with enough provisional sums and exclusions in it that it behaves like an estimate.

Telling them apart takes about 10 minutes and saves a great deal of money.

All 3 have a legitimate use. The problem is when an estimate is presented as if it were the third column.

A builder cannot fix a price on information they do not have. For a granny flat that means:

• A site inspection. Slope, access, existing structures, where services run.
• A soil test. Sets the slab design and reveals rock. This is the big one.
• A survey. Boundaries, levels, and what will actually fit.
• The design finalised. Including finishes, because selections carry cost.
• Service locations confirmed. Particularly sewer.
• The approval pathway known. CDC and DA cost different amounts.

If a number arrives before those 6 things, it is an estimate. That is fine at the budgeting stage. It is not fine as the basis for signing a contract.

A provisional sum is an allowance for work that cannot be priced exactly yet. The most common one on a granny flat is site works.

Here is how it behaves:

• The quote includes, say, $15,000 for site works
• Excavation begins and hits rock
• The actual cost is $27,000
• You pay the difference

Provisional sums are not dishonest. Sometimes they are unavoidable. But a quote with several large provisional sums is not a fixed price, and it should not be compared against one that is.

The question to ask: which items in this quote are provisional sums, and what happens if they are exceeded?

Look for these signs.

That last row is what you want before signing anything.

Being fair about this matters, because no price can be absolutely immovable.

Two things reasonably change a fixed price:

Variations you request. You change the benchtop, add a window, move a wall. You pay for the change. This is normal and should be documented in writing with a price before the work happens.

Genuinely unforeseeable conditions. Something no reasonable investigation would have found. This is a much narrower category than it is often used for. Rock found after a soil test that showed rock is not unforeseeable. Contamination nobody could have known about might be.

The test of a good contract is how narrowly that second category is defined.

• Get every quote against the same written scope
• Mark each item included, excluded or provisional on all of them
• Price the excluded items and add them to that quote’s total
• Add a realistic allowance for each provisional sum being exceeded
• Now compare

Step 4 is the one people skip, and it is where the ranking usually changes.