With timber, steel, aluminium, and glass all seeing price increases in Q1 2026, one of the biggest decisions facing NZ tradies right now is how to structure their contracts. Get it wrong and a job you quoted three months ago can eat into your profit — or wipe it out entirely.
This guide breaks down the two main contract types — fixed-price and cost-plus — and helps you decide which one to use, when, and how to protect yourself either way.
What Is a Fixed-Price Contract?
A fixed-price contract (sometimes called a lump-sum contract) means you agree to complete the job for a set amount, regardless of what materials end up costing you. If timber prices rise between the day you quote and the day you buy, that's your problem — not the client's.
When it works well: - Small, clearly scoped jobs (a bathroom retile, fence replacement, single room repaint) - Short timeframes where material prices are unlikely to shift - Work you've done many times and can price with confidence - Clients who prefer certainty and are willing to pay a premium for it
The risk in 2026: Material price volatility is real. According to industry data, Q1 2026 saw increases across key building materials due to supply chain pressure and Middle East conflict affecting freight. A fixed-price quote you give today could be underwater by the time you buy materials in 8–12 weeks.
How to protect yourself on fixed-price jobs: - Add a materials escalation clause — if materials rise more than 5–10%, you have the right to adjust the contract price - Buy materials as soon as the contract is signed, locking in today's prices - Quote with a shorter validity period — 14 or 21 days instead of 30–60 days - Use our Materials Escalation Calculator to stress-test your quote against potential price increases before you sign
What Is a Cost-Plus Contract?
A cost-plus contract means the client pays your actual costs — materials, labour, subcontractors — plus an agreed margin on top. That margin might be expressed as a fixed percentage (e.g., 20% on all costs) or a fixed daily/hourly rate for your time.
When it works well: - Large or complex builds where scope is genuinely uncertain - Renovation and alteration work where hidden surprises (rot, asbestos, substandard previous work) are likely - Long-duration projects where material prices are unpredictable - Clients who are closely involved in selecting finishes and fittings
What clients don't like: Cost-plus puts all the financial risk on the homeowner. Many residential clients dislike not knowing the final number, and some will shop around for a fixed-price alternative rather than accept the uncertainty — even if cost-plus would actually save them money.
How to make cost-plus palatable for clients: - Provide a detailed estimate (not a quote) upfront, showing expected costs with a realistic range - Break your margin out clearly — transparency builds trust - Cap your margin as a percentage but not your total fees (so your work is always worthwhile if scope grows) - Provide regular progress invoices with itemised costs so there are no end-of-project surprises
The Legal Framework: What MBIE Says
The Ministry of Business, Innovation and Employment (MBIE) regulates building contracts under the Construction Contracts Act 2002. Whether your contract is fixed-price or cost-plus, certain things are required by law:
- Payment claims must follow the Act's process or you may lose the right to enforce payment
- Disputed amounts can go to adjudication — a faster and cheaper alternative to court
- Retention money rules apply to contracts over $20,000 — funds must be held in a trust account
Under the Consumer Guarantees Act, residential work also carries implied warranties around acceptable quality and fitness for purpose — regardless of how your contract is structured. MBIE's Building and Construction page has plain-English guidance on your obligations.
Hybrid Approaches That NZ Tradies Actually Use
Many experienced tradies use a blend of both structures depending on the part of the job:
Fixed labour + provisional materials: Your time is quoted at a fixed rate, but materials are charged at actual cost plus a handling margin. This gives the client cost certainty on labour (usually the bigger concern) while protecting you from material volatility.
Provisional sums: Within a fixed-price contract, you can include "provisional sums" for items where price isn't yet known — a specific tile the client wants, a fixture that's on back-order, or earthworks that depend on what's underground. The PS amount is a placeholder; the final cost replaces it.
Schedule of rates: Common in commercial work. You provide a rate card — e.g., $X per m² of plastering, $Y per linear metre of framing — and the client pays based on measured quantities. Great for repetitive work where quantities might change.
Protecting Your Margins: A Practical Checklist
Before you sign any contract in 2026, run through this:
- Have you priced the materials today? Don't estimate from memory — get supplier quotes.
- Is your quote validity period short enough? 14–21 days is reasonable in a volatile market.
- Have you included a materials escalation clause on anything over $30,000?
- Do you have a clear scope of works document? Scope creep is the silent margin killer.
- Is your payment schedule tied to milestones? Never do more than 10–15% of a job's work before your next payment.
- Have you factored in your overhead and profit? Use our Labour Cost Calculator to make sure your rates actually cover your business costs.
Quoting Strategy for 2026
Given the current environment, here's what many experienced NZ tradies are doing:
- Moving larger residential jobs (>$50k) toward cost-plus or provisional-sum hybrid structures
- Adding explicit materials escalation clauses to all fixed-price contracts
- Keeping quote validity to 14 days for any job involving significant materials
- Buying materials on contract signature rather than waiting until the work starts
Use our Quote Builder Wizard to structure your next quote with the right margin, GST treatment, and payment milestone schedule built in.
Should You Talk to Your Accountant or Solicitor?
For jobs over $100,000, yes — absolutely. A solicitor can review your contract template, ensure your payment claim processes comply with the Construction Contracts Act, and help you draft escalation clauses that will hold up if disputed. The cost of an hour's advice is trivial compared to the risk of a $10,000 materials blowout on a fixed-price job.
For smaller jobs, a well-written standard contract template does the job. Download our free NZ tradie templates at tradietools.nz/templates/ — including a fixed-price residential contract, cost-plus agreement, and variation order form.
The Bottom Line
In 2026's volatile materials market, cost-plus or hybrid contracts reduce your risk on larger jobs, while fixed-price still makes sense for small, well-defined work. The key is knowing which tool to reach for — and protecting yourself with clear terms, short quote validity, and escalation clauses whenever you do quote a fixed price.
For help finding work, tracking your crew, and managing your jobs from your phone, Fastcrew is worth a look — it's built specifically for NZ tradies who need to stay on top of quotes, timesheets, and job status on the go.
NZ Tradie Tools provides free calculators, templates and guides for New Zealand tradies. Visit tradietools.nz.