I would confront them from the stand point of trying to figure out what they envision the problem that you want them to solve. Usually when I deal with client's and we're not seeing eye to eye on a project budget wise, it's because the client is thinking about the system one way, and I'm thinking about the system a totally different way.
A good example would be say my client told me to build a CMS system to handle their business processes. I look at their requirements and deduce from them that I need to home grow an entire system for them. However, the client is really trying to tell me, deploy a CMS system that is already built by a third party, and fill in the other details as you can.
The two different scenarios have completely different budgets