Cost-Plus vs Fixed-Price Contracts: Which Suits Your Build

A fixed-price contract sets one number for the drawings you sign, and the builder carries the risk of costs rising. A cost-plus contract bills what the work actually costs plus a fee, and that risk stays with you. Neither wins in general. Finished drawings and selections are what make a fixed price hold, and a design still changing points to cost-plus, with the fee fixed or capped.

Cost-plus vs fixed price at a glance

Both contracts can build the same house to the same standard. What changes is who carries the risk of costs rising, what you get to see, and how finished the design must be before you sign.

The CHBA's homeowner guide to renovation contracts calls the all-inclusive stipulated fixed cost contract the most common type, with cost-plus used primarily on larger projects.

How a fixed-price contract works

A fixed-price contract, which the Canadian Construction Documents Committee's CCDC 2 form calls a stipulated price, sets a single, pre-determined lump sum for the project. CCDC 2 assumes monthly progress payments, and on a custom home the draws usually follow the stages of the build, such as foundation, lock-up and completion. The builder carries the risk of labour and material prices rising and prices that risk in as contingency, so you pay for it whether or not it happens.

To quote a number it will hold, the builder needs finished drawings and selections, and a Toronto builder's 2026 guide puts the point where a fixed price works at about 95% of the scope defined. Even then the price moves through three doors: allowances for items not yet chosen, such as cabinets, plumbing fixtures, tile and lighting; exclusions such as site conditions, engineering, permits, utility upgrades and hazardous materials; and change orders you sign. Fixed prices from different builders compare only on the same drawings, and lining the quotes up line by line exposes the one that kept its allowances low.

How a cost-plus contract works

A cost-plus contract, CCDC 3 in the standard forms, bills the work on an actual-cost basis plus a percentage or fixed fee applied to those costs. Trade and supplier invoices pass through at cost, usually billed monthly with the receipts, and the CHBA notes that the management fee can be a percentage of total expenses or a fixed fee.

Builders' 2026 figures put the builder's fee on cost-plus at 15 to 20% of construction costs. There is no cap unless you negotiate one, and a percentage fee rises with every dollar the job costs, overruns included. Design fees, permits and items you buy yourself are often outside the contract and paid separately.

Construction management and a guaranteed maximum price

Construction management sits between the two. Under CCDC 5B, the construction manager advises before construction and then builds, starting on an actual-cost basis plus a percentage or fixed fee. The parties can then agree a guaranteed maximum price (GMP), a GMP plus a percentage of cost savings, or a conversion to a stipulated price, at a point one Vancouver builder puts at 80 to 90% of the drawings.

A GMP is a ceiling on the price, and below it the job runs as cost-plus; ask how the contract moves the ceiling when the scope changes. Construction management lets early work start before the design is final, and the ceiling, once agreed, gives you a number to plan around.

Under CCDC 5A, the construction manager acts as your limited agent, advising and overseeing while you hold the contracts with the trades. On a new house in Ontario that matters: Tarion warns that if you exercise significant control over construction, the home may not qualify for statutory warranty coverage. A builder you hire for a new house must hold a builder licence from the HCRA in Ontario, BC Housing in BC or the province in Alberta, and an owner building for their own use needs an Owner Builder Authorization in BC and Alberta.

Which contract suits your build

Match the contract to how finished the design is and how much cost risk you can carry.

• Fixed price suits finished drawings. Every product is chosen, the soil report is in, and you will not change much once the walls go up.
• Fixed price suits a hard budget. You need one number to borrow against or stay under, and you accept paying for the builder's contingency to get it.
• Cost-plus suits a design still moving. You want to start before every drawing is final, or to choose finishes as the house takes shape.
• Cost-plus suits unknown conditions. An older house about to be opened up, or a lot where nobody can price the ground until it is dug.
• Cost-plus suits owners who read invoices. You will review the monthly costs and receipts, and you trust the builder's books.

Each is the wrong tool in the opposite case: a fixed price signed on half-finished drawings turns into a run of change orders, and cost-plus without monthly review is an open cheque. Either contract is only as good as the builder signing it, which is why checking references and past budgets comes before the choice of contract.

The fine print to ask for in either contract

The label matters less than the clauses under it. Ask for these in writing, whichever contract you sign.

• Allowances. An amount for each, what it covers, and how the difference is priced when your choice costs more or less, markup included.
• Exclusions. A list of what the price or budget leaves out, from engineering and permits to utility upgrades and hazardous materials.
• Change orders. Each one priced and signed before the work, and on cost-plus, whether the fee applies to changes.
• What the fee covers. On cost-plus, whether the site supervisor and the builder's own crew are billed as costs or paid from the fee, and whether trade invoices pass through without markup.
• A fixed fee or a cap. Converting a percentage to a dollar fee once the drawings are done stops the fee growing with overruns.
• Payments. The CHBA says a deposit at signing can vary from 5 to 15% of the contract. Each later draw is paid less a 10% holdback, which Ontario, BC and Alberta law requires.
• Open books. On cost-plus, the right to see every invoice and receipt, and a monthly report of costs against the budget.

Does Ontario's 10% estimate rule cover cost-plus?

Ontario's Consumer Protection Act, 2002 (s. 10) bars a supplier from charging more than 10% over an estimate included in a consumer agreement. In The Fifth Wall Corp. v. Tonelli (2022 ONSC 6590), the Superior Court applied the Act to a cost-plus residential contract with an itemized budget, but did not decide whether that budget was an estimate. On cost-plus, write the budget into the written contract, with how overruns are reported and approved before the money is spent.