Introduction
When it comes to property development, understanding building contracts isn’t optional—it’s essential. From fixed price and cost-plus to guaranteed maximum price and design-and-construct models, knowing your contract structure can protect your bottom line and help you build with confidence.
In this episode, inspired by a listener question from Cam, Bob and Hilary take a deep dive into how different contracts work, what to watch out for, and how to ensure value for money when there’s no competitive tension. They also share a few real-world lessons from their current projects—including a surprising mistake from a long-time quantity surveyor.
Episode Highlights
00:00 – Introduction and podcast housekeeping
02:00 – Listener email: Cam’s real-world development situation in South Australia
04:30 – Bob and Hilary’s current contract challenges and quantity surveyor misstep
06:45 – Lessons learned: when to rely on QS vs tender pricing
10:00 – Overview of contract types: Fixed Price, Cost-Plus, GMP
11:15 – Why financiers love fixed price and time contracts
13:00 – Cost-Plus contracts: what they are and why builders like them
15:20 – Guaranteed Maximum Price (GMP): benefits and savings share models
17:30 – Design and Construct (D&C) contracts explained
21:00 – How D&C improves buildability and controls costs
22:30 – The tender process and when to use it
24:00 – Advice for Cam: how to ensure value for money without tendering
27:00 – Residential vs commercial builder mindset
31:00 – New industrial and childcare/townhouse projects on the horizon
The Episode In Brief
Hilary:
Welcome to Episode 208 of The Property Mastermind Podcast. Today’s topic? Building contracts—what they are, how they work, and how to get them right.
Bob:
Contracts are one of the most important elements in any development. And with over 40 years of experience, I’ve seen what happens when you get them wrong—or right.
Hilary:
This episode was actually inspired by a great question from Cam, one of our students, who emailed us with a very real dilemma—no competitive tender and uncertainty around value for money.
Bob:
Cam and his development partner are subdividing in Grange, South Australia. They’ve chosen a builder based on an existing relationship but can’t go through a competitive tender process. They want to know: How do you get value for money in that situation?
Great question. It’s especially relevant in residential where builders often aren’t keen to tender. Let’s unpack the key contract types and when to use them.
Fixed Price and Time Contracts
Bob:
This is the contract most financiers prefer. It gives certainty—a single sum agreed upfront, and a defined time period. Banks love that, because they can calculate finance costs with accuracy.
Cost-Plus Contracts
Bob:
Here, the client pays the actual cost of the build—labour, materials, subcontractors—plus a margin. That margin could be a fixed dollar amount or a percentage.
The catch? The higher the cost, the more the builder makes. That’s why financiers typically don’t like it, and why developers should be cautious.
Guaranteed Maximum Price (GMP)
Bob:
This one’s a bit of a hybrid. The builder guarantees the total cost won’t exceed a set limit. If savings are made, they’re shared between developer and builder—e.g., 80/20 or 50/50. It gives upside with some level of control.
Design and Construct (D&C)
Hilary:
This model is common in commercial construction. It brings the builder into the design process early to prevent over-engineering.
Bob:
Exactly. You can save thousands by avoiding complex structural elements or unnecessarily high specs. The builder works closely with architects and engineers to make sure what’s drawn is also practical—and affordable—to build.
Tender Process
Bob:
This is more typical on the East Coast. You do your DA, get all your drawings and approvals, then send the full package to several builders and get quotes. That competitive tension helps control cost.
So What About Cam’s Situation?
Hilary:
Because they’ve already chosen a builder, and there’s no tender, Cam’s best option might be negotiating a D&C approach. That way, they stay involved in the design and budget process.
Bob:
Agreed. They could also push for transparency on material costs and keep input on design decisions to make sure they’re getting value.
Real-World Lessons from Bob & Hilary
QS Mistake: A long-trusted quantity surveyor massively overestimated construction costs. Thankfully, Bob held off and used actual builder prices—which turned out to be 2–3% under feasibility.
Legal Last-Minute Drama: Settlements delayed because of missing trust deed stamps, offshore signatures, and last-minute title issues—typical real-world chaos developers must manage.
Final Thoughts
Whether it’s fixed price, cost-plus, or D&C, your contract choice shapes your risk, your financing, and your results. And as Bob says, “You don’t know it’s wrong until it is.”
Always get good advice—and where possible, keep the builder accountable with transparency, collaboration, and a bit of common sense.