CCDC 3 cost-plus: controlling the Cost of the Work

A cost-plus contract does not fix a price. It fixes a method: the owner pays what the Work actually costs, plus a fee. That makes the definition of "Cost of the Work" the most important page in the contract. Under CCDC 3, every dollar the owner pays has to fit a category in that definition, and every dollar that does not fit belongs in the fee or nowhere at all. This lesson shows owners how to read it, choose a fee and an option, and control cost monthly.

Learning outcomes

• Explain how CCDC 3-2016 builds the Contract Price from the Cost of the Work (Article A-4) and the Contractor's Fee (Article A-5).
• Sort typical project costs into reimbursable cost, fee and not payable, and name the grey areas owners should define in Supplementary Conditions.
• Compare the Guaranteed Maximum Price and Target Contract Price options and predict who carries an overrun under each.
• Set up monthly cost reporting, payment backup and audit under GC 5.2 that also works with Ontario's prompt payment rules.

The lesson

Which CCDC 3 are we talking about?

The current edition is CCDC 3-2016, Cost Plus Contract. CCDC's own document list still shows 2016 as the only edition in November 2026. In June 2025 the Canadian Construction Association invited industry feedback on an update to CCDC 3, so a new edition is coming, but until it is published, owners sign the 2016 form. That matters, because CCDC 3-2016 predates both CCDC 2-2020 and Ontario's prompt payment regime. It has no Ready-for-Takeover milestone, and its payment clauses were written before Part I.1 of the Construction Act came into force on October 1, 2019. Ontario owners using it need Supplementary Conditions that align payment with the statute.

Lesson 4 compared the pricing models at a high level. This lesson goes inside the cost-plus form.

How the price is built

The Agreement of CCDC 3-2016 sets out the money in four articles. Article A-4 defines the Cost of the Work: the categories of actual cost the owner reimburses. Article A-5 sets the Contractor's Fee, which can be a percentage of the Cost of the Work, a fixed amount, or a combination. Article A-6 makes the Contract Price the sum of the two. Article A-7 holds the options, and the Definitions include two of them: a Guaranteed Maximum Price (GMP) and a Target Contract Price.

What counts as the Cost of the Work

Article A-4 lists the categories of cost the owner pays. Read it as a closed list: a cost outside every category is not reimbursable. Broadly, the categories cover the people, things and services the job consumes at or for the Place of the Work: site labour and its actual burden, site supervision and project staff, subcontracts, Products, Construction Equipment, temporary work and facilities, and project-specific costs such as permits, bonds and insurance. What the contractor spends to run its business generally sits in the fee: head-office staff, corporate overhead and profit.

Disputes rarely come from the obvious items. They come from the edges, shown in orange in Figure 2: the hourly rate for equipment the contractor owns, the cost of fixing its own defective work, a project manager who splits time between site and head office, markups on self-performed work, and costs that change after the deal is signed. On that last one, CCDC's Bulletin 29 (August 2025) confirms that tariff changes need no special adjustment under CCDC 3, because they are already reimbursable as part of the Cost of the Work. On a cost-plus job, the owner carries tariff and price risk by default.

Choosing the fee

A percentage fee grows with cost, so it pays the contractor more when the job costs more. A fixed fee separates profit from cost, which removes the incentive to spend, but it needs a scope definition firm enough to say when the fee itself should change. Many owners combine them: a fixed fee on the base scope, and a stated percentage on approved changes. Whatever the choice, write down what the fee covers. If head-office estimating, accounting or IT support is in the fee, say so, so it is not billed again as cost.

The options: a ceiling or a shared target

Pure cost-plus leaves every overrun with the owner. The two Article A-7 options move some of that risk. With a GMP, the Contract Price cannot exceed the agreed maximum, so cost above it falls on the contractor unless the scope changes. With a Target Contract Price, the parties agree a target and a formula that splits any saving, and often any overrun. Figure 3 shows what the owner pays under each structure for a range of final costs, using illustrative numbers.

View the data

Final Cost of the Work	Cost-plus	GMP $34.95M	Target 50/50
$31.80M	$33.45M	$33.45M	$34.20M
$32.55M	$34.20M	$34.20M	$34.58M
$33.30M	$34.95M	$34.95M	$34.95M
$34.30M	$35.95M	$34.95M	$35.45M
$35.30M	$36.95M	$34.95M	$35.95M

Two things follow. First, a GMP is only as good as its scope. Every change the owner makes moves it, through a Change Order or a GC 6.6 claim, so a GMP set on thin drawings becomes a moving number. Second, a target with savings sharing pays the contractor to look for savings, which is useful, but also to argue the target up at the start. Set either one when most of the trade packages have been priced, not on concept drawings.

What the courts add

Even a pure cost-plus contract does not give the contractor a blank cheque. In Infinity Construction Inc. v. Skyline Executive Acquisitions Inc., 2020 ONSC 77, an Ontario court treated a CCDC 3 contract as carrying an implied term that the owner does not pay for wasteful and uneconomic use of labour and materials. Where there is an estimate, the final cost should land near it unless the contractor warned the owner promptly of an overrun. That helps owners, but only after the fact; good monthly reporting is cheaper than litigation.

Records, audit and payment

GC 5.2, Accounting and Audit, is where the owner's control lives. The contractor keeps the records, and the owner gets access to them. Check the review window and what "records" includes, and extend both by Supplementary Condition if needed: timesheets, payroll burden calculations, subcontract invoices and payments, equipment logs, and supplier credits.

Prompt payment changes how backup works in Ontario. The owner must pay a proper invoice within 28 days, unless it gives a notice of non-payment within 14 days stating the amount withheld and every reason. A contract cannot make the giving of a proper invoice depend on prior certification or owner approval. So the backup the owner needs must be required as part of the invoice package, in the contract, and reviewed fast enough to issue a notice inside 14 days. Since January 1, 2026, an invoice is also deemed proper unless the owner gives written notice of the missing information within seven days of receiving it, so the first completeness check has to happen within a week. The 10% holdback applies to each draw, fee included.

Northgate worked example

Northgate Distribution Centre (fictional) is a 12,000 m² tilt-up warehouse in Vaughan, built for Northgate Logistics Inc. (fictional) under a CCDC 2-2020 stipulated price contract with Halvorsen Builders Ltd. (fictional) at $34,950,000 excluding HST. See the Northgate fact sheet.

What if Northgate had been procured under CCDC 3?

Suppose, as a hypothetical, the owner had wanted to start site work before the design was finished and signed CCDC 3-2016 with Halvorsen instead. In this illustrative version, the estimated Cost of the Work is $33,300,000 and the fee is fixed at $1,650,000, giving the same $34,950,000. The owner's $3,050,000 contingency would still sit outside the contract.

Halvorsen submits a cost report with each monthly invoice. Part of an illustrative report, at the end of month 6, looks like this:

The owner's representative asks three questions. Why is site staff forecasting over budget at month 6? (A second superintendent was added; was that agreed?) Is the slab overrun rework of defective work, and if so, does the contract reimburse it? And is the forecast real: does committed cost plus remaining work support the number? The answers decide whether the owner pays, issues a notice of non-payment on part of the invoice, or asks Halvorsen to justify the cost under the implied term from Infinity.

The same skill on the real Northgate contract

Northgate's actual contract is stipulated price, but cost-plus thinking still applies. When the owner and Halvorsen cannot agree the price of a change, CCDC 2-2020 GC 6.3 lets the owner issue a Change Directive, and the work is then valued on the cost of performing it, plus an allowance for overhead and profit. CCDC 2-2020 organizes those recoverable costs into categories, much like a small cost-plus contract inside the stipulated price contract. Sorting costs as in Figure 2 is the same skill.

Owner's move

• Define the grey zones in writing. Use Supplementary Conditions to set equipment rates, the treatment of rework, split-role staff and self-performed markups before the first invoice.
• Make backup part of the proper invoice. List the documents each invoice must include, so the 14-day review is possible.
• Prefer a fixed fee with a change percentage. It separates profit from spending while still paying fairly for added scope.
• Set a GMP or target on priced packages. Wait until most trade prices are in; then the number means something.
• Audit during the job, not after. Schedule reviews at set points, for example mid-construction and before final payment.

Common mistakes

1. Signing the 2016 form unamended in Ontario. Its payment clauses predate Part I.1 of the Construction Act.
2. Treating the cost report as information only. It is the owner's main control; a forecast nobody challenges is no control.
3. Paying head-office costs twice. Once in the fee and again as "project staff".
4. Setting a GMP on concept drawings. Every later scope decision then reopens it.
5. Forgetting the owner carries price risk. Tariff and escalation changes flow straight to the owner on a cost-plus job.

Quick quiz

1. Under CCDC 3-2016, which article defines the costs the owner reimburses?

   1. A-4 Cost of the Work
   2. A-5 Contractor's Fee
   3. A-6 Contract Price
   4. GC 4.1 Cash Allowances

2. Under a GMP with no savings share, the final Cost of the Work is $35.3M and the fixed fee is $1.65M. The GMP is $34.95M and the scope has not changed. What does the owner pay?

   1. $36.95M
   2. $35.95M
   3. $34.95M
   4. $33.30M

3. Which fee structure most directly rewards the contractor for higher cost?

   1. Fixed fee
   2. Percentage fee
   3. Target with savings sharing
   4. GMP

4. In Ontario, an owner wants to withhold part of a cost-plus invoice. By when must it give a notice of non-payment?

   1. Within 7 days of the invoice
   2. Within 14 days of receiving the proper invoice
   3. Within 28 days of the invoice
   4. Before final payment

5. According to CCDC Bulletin 29, how are tariff changes handled under CCDC 3?

   1. They need a Change Order with markup
   2. They are excluded from payment
   3. They are reimbursable as part of the Cost of the Work
   4. They are paid only above a threshold

Show answers and explanations

1. A. Article A-4 defines the Cost of the Work; A-5 covers the fee and A-6 adds the two.
2. C. Cost plus fee is $36.95M, but the GMP caps the Contract Price at $34.95M; the contractor bears the $2.0M above it.
3. B. A percentage fee rises with every dollar of cost.
4. B. The owner pays within 28 days unless it gives notice within 14 days of receiving the proper invoice, stating the amount and the reasons.
5. C. The bulletin notes that CCDC 3 needs no special adjustment because these costs are already reimbursable.

Key terms

Cost of the Work

Under CCDC 3, the actual costs in the categories listed in Article A-4, which the owner reimburses.

Contractor's Fee

The contractor's compensation for overhead and profit under Article A-5: a percentage, a fixed amount, or both.

Guaranteed Maximum Price (GMP)

An agreed ceiling on the Contract Price; cost above it falls on the contractor unless the scope changes.

Target Contract Price

An agreed target with a formula for sharing savings, and often overruns, between owner and contractor.

Cost report

A periodic report by package showing budget, cost to date, committed cost, forecast at completion and variance.

Notice of non-payment

The owner's notice, within 14 days of a proper invoice in Ontario, stating the amount it will not pay and why.

References

1. CCDC, CCDC 3 – 2016 Cost Plus Contract (document page).
2. CCDC, CCDC 3 table of contents (Agreement articles, Definitions and General Conditions).
3. CCDC, Documents (current editions list).
4. Canadian Construction Association, Help shape new CCDC documents with your feedback (June 2025).
5. CCDC, Bulletin 29: Adjustments in Contract Price due to tariffs (August 2025).
6. Speigel Nichols Fox LLP, Cost Plus, on Infinity Construction Inc. v. Skyline Executive Acquisitions Inc., 2020 ONSC 77 (June 2021).
7. CCDC, CCDC 3 webinar (description of fee basis and execution plan topics).
8. RAIC, Canadian Handbook of Practice for Architects, chapter 4.1 (cost plus and GMP).
9. Consolidated Construction Act, industry-hosted consolidation (prompt payment, Part I.1, and s. 22; check against e-Laws).
10. Clark Wilson LLP, Changes in the contract work: CCDC 2's General Condition 6 (Change Directive valuation).
11. Shiksha Puri and Harp Khukh, CCDC 2-2020 changes, The Voice (OSPE), Summer 2021 (Change Directive cost categories).
12. Fasken, Ontario's amendments to the Construction Act take effect January 1, 2026 (December 2025).

Verified on November 6, 2026.

Next lesson in this trackCCDC 4 unit price: quantities and remeasurement