October 13, 2026
How a Cost-Plus Contract Works in Ontario, and How to Run One
A cost-plus contract is one where you pay the contractor what the work actually costs, plus a fee for their overhead and profit. The fee is either a percentage of the cost or a fixed amount. In Canada the standard form is CCDC 3 – 2016, the Cost Plus Contract, which the Canadian Construction Documents Committee describes as a prime contract “to perform the required work on an actual-cost basis, plus a percentage or fixed fee which is applied to actual costs.” You get a faster start and full sight of the numbers. In exchange, the final price isn’t known when you sign, and you take on the work of checking what you’re billed.
It suits work where the scope can’t be fully drawn before the start or time matters more than a tendered price. It suits you less if your lender needs a fixed number on day one, or if nobody on your side will read the monthly cost report.
This guide is for owners and developers of commercial and multi-unit projects in Ontario who’ve been offered a cost-plus contract or are weighing one against a fixed price. It isn’t legal advice; have a construction lawyer review any contract before you sign it.
How a cost-plus contract works
On a fixed-price job, the contractor quotes one number for a defined scope and carries the risk of building it for that number. On a cost-plus job, the contractor buys the labour, materials, equipment and subcontracts the work needs, bills you what they actually paid, and adds the agreed fee. You see the invoices behind each payment and pay the real cost, higher or lower than the estimate.
A cost-plus project still starts with an estimate and a budget. Most of the controls later in this article come down to comparing actual cost against that budget, every month, package by package.
What’s in CCDC 3 – 2016
CCDC 3 – 2016 is still the current edition on ccdc.org as of October 2026, sold electronically, with CCDC 24 – 2022 A Guide to Model Forms and Support Documents as its guide. The table of contents in CCDC’s published preview of the form shows where it departs from the CCDC 2 stipulated price contract:
- A-4 Cost of the Work. What you’ll reimburse. Read this one most carefully, because it decides what you can be billed for.
- A-5 Contractor’s Fee. The fee basis.
- A-6 Contract Price. On a cost-plus job, the price is the Cost of the Work plus the Fee, which is only known at the end.
- A-7 Options, alongside two defined terms CCDC 2 doesn’t have: Guaranteed Maximum Price and Target Contract Price.
- GC 5.2 Accounting and Audit. The contractor’s records and your access to them.
- GC 5.7 Progressive Release of Holdback, and GC 6.6 Claims for a Change in Contract Price, GMP or Target Contract Price.
The rest will look familiar to anyone who’s read CCDC 2. Owners rarely sign any CCDC form unamended, and on a cost-plus job most of the supplementary conditions are about cost.
One thing to watch: CCDC 3 predates Ontario’s prompt payment rules, which came into force on October 1, 2019 (Construction Act, Part I.1). The 2025 construction management forms moved to a 28-day payment period to match them (BLG, July 2025). If you use CCDC 3, ask your lawyer to bring its payment terms in line with the current Construction Act.
When cost-plus fits
Cost-plus suits projects where a fixed price would either take too long to get or come back loaded with risk money. Typical cases:
- Renovation and repositioning of an existing building, where what’s behind the walls won’t be known until demolition.
- Fast-track starts, where the site has to move before the drawings are finished, for example to meet a lease commencement or a financing deadline.
- Emergency and restoration work after fire, flood or a structural problem.
- Work for a repeat owner with a contractor they know.
- Projects that change as they go, such as a tenant fit-out where the tenant is still deciding on layout.
The contractor’s fee: percentage or fixed
The fee covers the contractor’s head-office overhead and profit. Its basis changes how the contractor is paid as cost moves, so choose it on purpose.
Percentage fee
The fee is a percentage of the Cost of the Work. It’s simple and scales automatically with changes. The drawback is that the fee rises with the cost. Most contractors don’t run jobs to grow it, but the structure doesn’t reward savings, so the controls you put around cost carry more weight.
Fixed fee
The fee is a set dollar amount, agreed against a defined scope, and it doesn’t move with cost unless the scope changes. It separates the contractor’s profit from the cost and gives them a reason to finish on time. The drawback is that it needs a scope clear enough to agree a fee against, and each added scope raises the question of whether the fee moves too.
Combined and at-risk fees
The two can be combined: a fixed fee for the base scope and a percentage on changes, or a fixed fee with part held at risk against the budget or schedule. CCDC describes the CCDC 3 fee as “a percentage or fixed fee”, and the Canadian Construction Association describes it as “a percentage and/or fixed amount”, so any of these can be written into A-5.
What sets the fee
There’s no published Canadian benchmark for cost-plus fees that we’d rely on, so the useful question is what sets the fee on a given job:
- What’s in the fee and what’s in the cost. A contractor whose site supervision, project management and site office are reimbursed as cost will quote a lower fee than one who carries them in the fee. Two fee proposals can only be compared once you know where those items sit.
- Size, risk and the market. Larger jobs usually carry a lower percentage; a fee with part at risk against a GMP is priced higher; busy contractors price fees higher.
- Self-performed work. If the contractor’s own crews do work and bill it as cost, the markup inside their labour rates matters as much as the fee.
Judge a fee the way you’d judge an estimate. Our guide to reading a construction estimate covers how to break down general conditions and overhead, which is the same exercise here.
What counts as a cost and what doesn’t
Most cost-plus disagreements start with the definition of the Cost of the Work, usually an honest difference over whether an item belongs in the fee or the cost. CCDC 3 sets out the Cost of the Work in A-4. Check how it treats each item below, and settle the rest in your supplementary conditions before the job starts.
| Item | Usually reimbursable as cost | Usually in the fee, or excluded | What to settle in writing |
|---|---|---|---|
| Trade subcontracts | Yes, at the amount actually paid | That you approve each award, and see the bids | |
| Site labour (the contractor’s own forces) | Yes, at wage plus actual burden | Rates, the burden calculation, and who approves overtime | |
| Materials and products | Yes, net of discounts and rebates | That discounts and rebates come back to you | |
| Site supervision and project staff | Often, for staff working on site | Sometimes in the fee | Named roles, rates, and the percentage of time on your job |
| Head-office staff and overhead | Yes, in the fee | That accounting, estimating and executives aren’t billed as cost | |
| Site office, temporary facilities, hoarding | Yes | Whether they’re bought, rented or supplied from the contractor’s yard | |
| Contractor-owned equipment | Yes, at agreed rates | A rate schedule, and a cap at the equipment’s value | |
| Rented equipment | Yes, at the rental invoice | That idle rented equipment is sent back | |
| Insurance and bonds | Often, for project-specific policies | Corporate policies in the fee | Which policies, and how premiums are allocated |
| Permits and fees | Yes, if the contractor pays them | Who pulls which permits | |
| Rework of defective work | Usually excluded or capped | Who pays to fix the contractor’s own errors | |
| Costs of the contractor’s default or negligence | Excluded | Plain wording that they aren’t reimbursable | |
| Legal costs and disputes | Usually excluded | That claims against you aren’t funded by you | |
| Interest and financing | Usually excluded | That the contractor’s financing costs stay theirs | |
| HST | Billed on top of the cost and fee | That it’s shown separately on each invoice |
Equipment the contractor owns. On a long job, daily or monthly rates for owned equipment can add up to more than the equipment is worth. Agree a rate schedule, and a point at which billing stops.
Self-performed work. Work by the contractor’s own crews is normal and often efficient. Check that the labour rate reflects wages and real burden (benefits, statutory deductions, WSIB) rather than a rate that already includes the overhead and profit the fee covers.
Rework. A trade usually fixes its own errors under its subcontract. Where the contractor’s own forces or a coordination error are involved, the contract has to say who pays, and most owners settle on not reimbursable, or reimbursable only up to a limit.
Discounts and rebates. Volume rebates, prompt-payment discounts and returned surplus material all reduce the actual cost. On a cost-plus job, they should come back to you.
Caps and incentives: GMP and shared savings
A plain cost-plus contract has no ceiling, which is where the question “is cost-plus a blank cheque?” comes from. It isn’t, because the contract defines what’s reimbursable and you have audit rights, but there’s no number the contractor has agreed not to exceed. CCDC 3 provides for two ways to add one.
Guaranteed maximum price
A guaranteed maximum price (GMP) is a ceiling on the Contract Price: the Cost of the Work plus the Fee. Costs above it are the contractor’s, except where you’ve changed the scope. Below it, you still pay actual cost. In CCDC 3 the Guaranteed Maximum Price is a defined term, and GC 6.6 covers claims for a change in the GMP, so the cap moves when the scope does (CCDC preview).
A contractor asked for a GMP on early drawings will include contingency for everything not yet drawn, so that GMP will sit well above the likely cost. A GMP set once most of the trade packages have been priced is a ceiling you can compare against a stipulated price, so it’s usually worth waiting until then to agree one.
Ask what’s in the GMP’s contingency, who can draw on it, what it can be drawn on for, and whether unused contingency comes back to you. What a reasonable contingency looks like at each design stage is covered in how much contingency is enough.
Target price and shared savings
CCDC 3’s other defined term is the Target Contract Price. Under a target price, the difference between the final cost and the target is shared between you and the contractor on a formula agreed at the start. If the job comes in under the target, you split the savings. Depending on how it’s written, an overrun may be shared too.
Shared savings give the contractor a direct reason to look for savings, which a percentage fee doesn’t. They work best when the target is set on priced trade packages rather than early drawings, and the formula is simple enough that both sides can see where they stand each month.
When construction management is the better fit
On larger projects where you want a builder involved from early design, the construction management form CCDC 5B is often the better choice than CCDC 3. It’s also a cost-of-the-work-plus-fee contract, with a separate pre-construction phase, and the 2025 edition lets the parties agree to a GMP, a GMP plus percentage cost savings, or conversion to a stipulated price (CCDC). It also gives the owner a year after final completion to audit the CM’s cost records (WeirFoulds, December 2025). We compare the two construction management forms in CCDC 5A vs 5B.
Roughly, CCDC 3 suits a contractor brought in to build where the job is defined by the design or by what’s found on site; CCDC 5B suits a builder brought in during design to advise, then build. How cost-plus fits alongside the delivery methods themselves is set out in design-build vs design-bid-build.
Running a cost-plus job: the owner’s controls
Open books are normal practice on cost-plus work, and most contractors who run a tidy job are glad to show them. What makes them useful is someone on your side reading them. These are the controls to agree at the start.
- Agree the budget and the estimate it’s built on. Before construction starts, agree a budget broken into trade packages and general conditions, built from the contractor’s estimate. Every report after that measures against it.
- Settle the definition of cost. Go through the table above and write the answers into the supplementary conditions: labour rates and burden, equipment rates, which staff are reimbursable, and what’s excluded.
- Set a threshold for competitive pricing. Require the contractor to get at least two or three quotes for any trade package or purchase above an agreed amount, and to show you the quotes with the recommended award.
- Approve trade awards. You don’t have to second-guess each choice, but you should see who’s being awarded what, and why the lowest price wasn’t chosen when it isn’t.
- Ask for a monthly cost report. One page per package: original budget, approved changes, current budget, cost to date, committed cost, forecast to complete, and the variance. The forecast to complete matters most, because it shows where the job is heading.
- Track changes even without a lump sum. Log every change with an estimate before it’s done, so you can tell later whether the overrun came from scope you added or from cost growth on the original scope. Our article on where change orders come from covers what tends to drive them.
- Review the backup with each draw. Sample the invoices, timesheets and subcontractor invoices behind each payment. Check enough to know the system works.
- Use your audit right. Read what CCDC 3’s GC 5.2 and your supplementary conditions say about the contractor’s records and how long you have to review them, then schedule an audit at a set point, such as halfway through the job and again before final payment, rather than leaving it to the end.
- Hold a monthly cost meeting. Thirty minutes on the cost report, with the contractor’s project manager and whoever reviews costs for you. Raise questions in the month the cost appears, while the people and paperwork are still to hand.
- Watch the general conditions. Site staff, temporary facilities and equipment are paid for every week the job runs, so on cost-plus a delay is billed to you.
Who does the review
On many owner teams, the consultant certifies progress and accounting pays invoices, and nobody reads the cost backup in between. Someone has to own the cost report: on a small job the owner, on a larger one a cost consultant or an owner’s representative.
Payment, holdback and invoices in Ontario
Ontario’s Construction Act applies to a cost-plus contract the same way it applies to a stipulated price contract. A few rules matter more on cost-plus work, because the amount on each invoice is built up from actual costs rather than a percentage of a fixed price.
Monthly proper invoices
Unless the contract says otherwise, the contractor gives you a proper invoice monthly (s. 6.3(1)). A proper invoice has to include the items listed in s. 6.1(1), among them the period, the contract, a description of what was supplied, the amount and the payment terms. Since an amendment in force on January 1, 2026, it can also include “any other information that is necessary for the proper functioning of the owner’s accounts payable system that the owner reasonably requests.” For a cost-plus job, write the backup you need into the contract: the cost report, the supplier and subcontractor invoices, and the timesheets for the period.
The contract can’t make the invoice conditional on a payment certifier’s prior certification or on your prior approval (s. 6.3(2)). Certification can still happen after the invoice arrives, so the review of cost backup has to fit inside the payment clock.
The 7, 14 and 28-day clock
Once you receive a proper invoice, you have 28 days to pay it (s. 6.4(1)). If you dispute part of it, you have to give a notice of non-payment, in the prescribed form, within 14 days of receiving it, setting out the amount you won’t pay and all the reasons (s. 6.4(2)). The undisputed part still has to be paid on time.
Since January 1, 2026, an invoice that’s missing required information is deemed to be a proper invoice unless you tell the contractor in writing, within seven days, what’s missing and what’s needed to fix it (s. 6.1(2)).
On cost-plus work, these deadlines set the monthly routine. In the first week, check the invoice is complete and the backup attached. By day 14, finish the review and issue any notice of non-payment for costs you don’t accept. By day 28, pay. A disputed item then goes to discussion and, if needed, adjudication.
Holdback on each draw
You retain a holdback of 10% of the price of the services and materials as they’re actually supplied (s. 22(1)). On a cost-plus job, that’s 10% of each draw: cost and fee together. The holdback protects you against liens from subcontractors and suppliers if the contractor doesn’t pay them.
From January 1, 2026, holdback no longer sits until the end of a long job. The Act requires accrued holdback to be released annually, with notice due within 14 days of each contract anniversary (s. 26), and CCDC 3 also has its own progressive release provision at GC 5.7. The annual release rules, substantial performance and final holdback are covered in more detail in our CCDC 2 guide, and they apply the same way to a cost-plus contract.
Final account
The final account reconciles every cost, settles every change, calculates the fee on the final cost and works out any GMP or target sharing. If the monthly reviews were done, it’s mostly adding up what’s already agreed. Set out in the contract what it will contain and how long each side has to review it.
Cost-plus or fixed price?
A cost-plus contract and a fixed price, stipulated price or lump sum contract trade price certainty against speed and flexibility. The question is which risk you’d rather carry on this project.
| Cost-plus (CCDC 3) | Fixed price (CCDC 2) | |
|---|---|---|
| What you know at signing | An estimate and a fee basis | A price for a defined scope |
| Who carries cost overrun on the base scope | You, unless there’s a GMP | The contractor |
| Who keeps savings | You (or shared, with a target price) | The contractor |
| Design needed before signing | Enough to estimate; can start early | Complete enough to price |
| Time to start | Faster: no full tender needed | Slower: design, tender, award |
| Changes | Added as cost plus fee | Priced as change orders |
| Visibility of cost | Full, by invoice | Price only, unless changes are on cost |
| Owner’s admin load | Higher: monthly cost review and audit | Lower: progress certification |
| Lender comfort | Lower, without a GMP | Higher |
| Suits | Renovation, fast-track, uncertain scope, repeat relationships | New builds with complete drawings, competitive tender, fixed budget |
A fixed price has its own cost. The contractor prices the risk of the unknown into the lump sum, and on incomplete drawings the change orders that follow are often priced on cost and markup anyway. Where the drawings are complete, a competitively tendered fixed price is usually the simpler contract to run.
Plenty of projects use both. A common pattern is to start on cost-plus while design finishes, then convert to a GMP or stipulated price once the trade packages are priced. Another is to run the main build on a fixed price and handle a defined portion, such as work in an occupied area or remediation, on a cost-plus basis with a cap.
Questions to ask before choosing
- How complete are the drawings, and when will they be?
- Is there a date the site has to start by, and what does missing it cost?
- How much is unknown about the existing conditions?
- Does your lender need a fixed number, and when?
- Do you, or someone working for you, have time to review a monthly cost report?
- Have you worked with this contractor before, and how did the billing go?
If most of the answers point to uncertainty and urgency, cost-plus is probably the right tool. If they point to a finished design and a fixed budget, tender it on a fixed price.
Frequently asked questions
Is cost-plus or fixed price better?
Neither is better in every case. Cost-plus suits projects with an uncertain scope or an urgent start, such as renovation of an existing building, where a fixed price would carry a large allowance for risk. A fixed price suits projects with complete drawings and a budget that can’t move. The deciding questions are how complete the design is, how much time you have, and whether you can review costs monthly.
Can a cost-plus contract have a cap?
Yes. CCDC 3 provides for a guaranteed maximum price, a ceiling on the cost plus the fee, with costs above it carried by the contractor except where you change the scope. It also provides for a target price, where savings, and sometimes overruns, against the target are shared on an agreed formula. A cap set on early drawings will carry more contingency than one set on near-complete drawings.
What costs are reimbursable on a cost-plus contract?
Whatever the contract defines as the Cost of the Work. Under CCDC 3, that’s set out in article A-4 and usually adjusted in the supplementary conditions. Typically it includes subcontracts, site labour, materials, equipment, site staff and temporary facilities. Head-office overhead, the contractor’s financing, legal costs and the cost of fixing the contractor’s own defects are usually excluded or covered by the fee.
Is a cost-plus contract a blank cheque?
No. The contract defines what counts as a reimbursable cost, the fee is set in advance, and the owner normally has the right to see the backup and audit the contractor’s records. What it lacks, without a GMP, is a ceiling, so the owner relies on a clear definition of cost and a monthly cost report with a forecast to complete that someone on their side reviews.
Where to start
If you’ve been offered a cost-plus contract, start with three things: the definition of the Cost of the Work, the fee basis, and the cost report you’ll get each month. If those are clear, cost-plus can be a sound way to build. If any of them is vague, settle it in the supplementary conditions before you sign.
We’ve spent more than 20 years on office, residential, retail and industrial projects, with experience built at PCL Constructors and Oxford Properties, and we’ve made this decision with owners before. If you’d like a second set of eyes on a cost-plus contract, a fee proposal or a monthly cost report, that’s what our construction consulting work is for.