June 2026
A surge in residential construction coupled with economic uncertainty has led to an increase in so-called ‘fixed price’ build contracts.[1] This trend is accompanied by a noticeable rise in disputes and cost claims under the Construction Contracts Act 2002.[2] Law firms are seeing more clients seeking advice before entering into build contracts, and more property owners and builders seeking assistance when costs fluctuate and the their relationship begins to deteriorate.
For many property owners embarking on a new build or renovation, a fixed price build contract offers reassurance, providing a sense of security and clear expectations for both parties. However, one of the most common misconceptions in residential construction is that a fixed price contract guarantees the final cost is set in stone. In reality, many fixed price contracts still allow for adjustments through the construction process. In those markets where projects are complex, and property prices and mortgages are high relative to incomes, the gap between client expectations and contractual reality is widening. For lawyers advising in this space, understanding why fixed prices increase, and how to manage that risk is essential.
For example, the Queenstown region exemplifies pressures that destabilise fixed price contracts. The unique challenges presented for residential construction, such as architecturally bespoke designs, competing demand for builders, steep/unstable sites, constrained access, fluctuating material costs and persistent labour shortages, all contribute to a construction relationship prone to risk. Indeed, almost all non-group home builders in the region refuse to enter build contracts which even purport to be fixed price. However, where ‘fixed price’ contracts do arise, for clients the advice is clear: ‘fixed price’ does not mean ‘risk-free’.
One of the most common reasons a fixed price contract increases is changes to the scope of works. Design amendments, specification upgrades, or on-site decisions such as relocating services can all inflate the cost of a fixed price project. On high-end projects, where builds often evolve substantially as work progresses, these changes are fairly common. Even in contracts which are not fixed price, problems usually arise when price amendments are not clearly communicated and/or documented between parties.
Another frequent misunderstanding involves provisional sums: allowances for items not fully priced at the point of signing. Build contracts often incorporate estimates where selections and pricing cannot be finalised early on. Kitchens, tiling, lighting and earthworks are common examples of provisional sums. While property owners may view a contract as ‘fixed’, the cost of their project will increase according to the actual expenditure incurred.
Terrain can also contribute to unexpected costs. Site conditions, weather events, and access issues can all trigger cost increases and time delays. Most standard-form contracts allow builders to recover time (and costs) for such events. While these provide a safety net to contractors, they often come as an unwelcome surprise to property owners who assume a fixed price contract insulates them. That disconnect is another significant pressure point in fixed price disputes.
As in many disputes, the crux of the issue is not whether the contract technically permits amendments, but whether the parties share a common understanding of:
For lawyers, it is important to advise clients (on both sides) to maintain written communication and seek clarification before authorising or progressing with any departure from the agreed scope of works.
A fixed price contract can provide structure and a degree of commercial certainty, but only where both parties understand, from the outset, the limits of what is truly ‘fixed’. In dynamic construction environments set against a backdrop of economic volatility and sustained residential building activity across New Zealand, the clearest protection against fixed-price build contract disputes remains aligned expectations as to how variations, provisional sums, and unforeseen conditions will be addressed.
[1] See Key New Zealand and International Trends, page 15 of Ministry of Business, Innovation and Employment (2024). Building and Construction Sector Trends – Annual Report 2023
[2] See, for example: Tracking the Trends: A Report on Statutory Adjudication in Aotearoa New Zealand 2003-2023 (Building Disputes Tribunal, Auckland, 2023)