What is a fixed price vs. cost-plus contract?

In Ottawa construction projects, a fixed price contract sets a total project cost upfront, while a cost-plus contract charges you for actual costs plus a contractor fee - each has distinct advantages and risks for homeowners.

Fixed Price Contracts in Ottawa

With a fixed price (or lump sum) contract, your contractor provides one total price for the entire project. Whether you're renovating a bathroom in Kanata or finishing a basement in Barrhaven, you know exactly what you'll pay regardless of how long the work takes or what challenges arise.

The contractor absorbs cost overruns, material price increases, or unexpected complications. This protects you from surprise expenses but means contractors often build in contingencies, potentially making the initial quote higher. Fixed price works best for well-defined projects with detailed specifications and plans.

For Ottawa homeowners, this approach provides budget certainty crucial for securing financing or managing household expenses. However, any changes you request during construction typically result in expensive change orders, since the contractor has already calculated their margins based on the original scope.

Cost-Plus Contracts in Ottawa

Cost-plus contracts charge you for the actual project costs (materials, labor, permits, subcontractors) plus a predetermined contractor fee - either a percentage (typically 10-20%) or fixed management fee. You pay for exactly what the project requires, no more, no less.

This approach works well for complex renovations where the full scope isn't clear upfront, like heritage home restorations in the Glebe or major structural work where you might discover issues once walls are opened. You benefit from actual material costs and labor hours rather than inflated estimates.

The risk is cost overruns if the project scope expands or takes longer than expected. Without careful oversight, costs can spiral beyond your budget.

What to Watch For in Ottawa

For fixed price contracts, ensure your quote includes specific materials, brands, and finishes. Vague specifications like "standard fixtures" leave room for disputes. Verify the contractor has proper WSIB coverage and insurance since they're taking on more risk.

With cost-plus agreements, establish a "not-to-exceed" maximum and require detailed receipts for all expenses. Insist on pre-approval for purchases over a certain amount (typically $500-1000). Some unscrupulous contractors inflate costs or charge retail prices while receiving contractor discounts.

Ontario Legal Protections

Under Ontario's Consumer Protection Act, contracts over $50 must be in writing and include specific details about costs, timelines, and materials. Both contract types must clearly outline the payment schedule - Ontario's Construction Act requires holdbacks of 10% for 60 days after substantial completion to protect against liens.

Getting It Right in Ottawa

Before signing either contract type, verify your contractor through ESA's licensing database (esasafe.com) for electrical work or TSSA for gas work. Check their WSIB clearance certificate and general liability insurance. For projects requiring City of Ottawa permits, confirm who's responsible for obtaining them and factor permit fees ($200-2000+ depending on scope) into your budget.

The choice between fixed price and cost-plus often depends on your project's complexity, your risk tolerance, and how well-defined your scope is before starting.

Official Resources:

• City of Ottawa Building Permits: 613-580-2424, ottawa.ca/building


• Ontario Consumer Protection: ontario.ca/consumer


• Construction Lien Act information: ontario.ca/construction-liens