Part of the Ontario construction contracts guide for owners.
A stipulated price is only fixed if someone is willing to carry the risk that material and labour costs move between bid and purchase. For most of the last decade, contractors absorbed that risk and priced it quietly into their bids. After years of volatile prices and the tariff disputes of 2025, many no longer will. Owners now see escalation clauses in bids, requests to add them, or bid prices with large unexplained contingencies.
A well-written price adjustment clause is often cheaper for the owner than a fixed price with a hidden premium. A badly written one is an open cheque. This guide explains how escalation clauses work, which Canadian indexes they can use, and how thresholds, caps and tariff provisions keep them under control.
What a price escalation clause does
A price escalation or adjustment clause changes the contract price when defined costs move beyond what was assumed at bid. Gowling WLG describes these clauses as setting a procedure for adjusting price when factors outside the parties' control shift, such as inflation, commodity prices or input costs.
The Canadian Construction Association's joint bulletin on price instability makes the commercial case. Without an escalation clause, bids will likely carry premiums to cover market risk. With one, contractors can bid on current material costs. The bulletin also says that placing most price fluctuation risk on one party isn't appropriate, especially on long projects.
That's the trade for owners. You either pay for the risk up front, in every bid, whether prices move or not, or you agree to pay the actual movement if and when it happens, within limits you set.
Two ways to measure the change
The CCA bulletin describes two common ways to measure a price change:
- Supplier quotes. Compare the supplier's quote at bid time with the price actually paid at delivery, supported by quotes and invoices from the same supplier.
- A published index. Measure the change in a building construction price index, or a specific product index, over a defined period.
Quote-based clauses track the real cost of the specific material, but they're open to argument about whether the contractor bought well, and they need full transparency on pricing. Index-based clauses are harder to manipulate and easier to audit, but the index may not match the exact product. Gowling's guidance contrasts broad indexes, such as the Consumer Price Index, which are stable and simple but not specific to any industry, with producer price indexes that track particular goods more closely.
Statistics Canada indexes owners can use
For Canadian projects, the obvious source is Statistics Canada.
Building construction price indexes. These quarterly indexes track what contractors charge to build new buildings in 15 census metropolitan areas, including Toronto, London and the Ontario part of Ottawa–Gatineau, for six non-residential building types: office, warehouse, shopping centre, factory, school and bus depot. The price covers materials, labour, equipment, overhead and profit, and excludes value-added taxes, land, design and real estate fees. The current table is 18-10-0289-01, and the series was rebased to 2023 = 100.
Industrial product price indexes. Table 18-10-0266-01 publishes monthly price indexes by product, classified under the North American Product Classification System. Most series use a 2020 base. For a package dominated by one commodity, such as structural steel, a product-level index is usually a better match than a whole-building index.
Statistics Canada also publishes a Price Adjustment Guide for Contract Escalation, which focuses on interpreting and citing its series correctly. It's worth reading before drafting.
View the data
| Quarter | Non-residential, quarterly change |
|---|---|
| Q1 2025 | +1.0% |
| Q2 2025 | +1.8% |
| Q3 2025 | +0.7% |
| Q4 2025 | +0.5% |
| Q1 2026 | +0.9% |
| Q2 2026 | +1.4% |
The recent figures show why owners are paying attention. In the second quarter of 2025, Statistics Canada reported that non-residential construction costs rose 1.6% in the quarter, and linked the 25% countermeasure tariffs introduced in mid-March to large price increases in plumbing, heating and air conditioning, utilities and structural steel framing. By the second quarter of 2026, non-residential costs were up 3.5% year over year, with conveying equipment, structural steel framing and metal fabrications among the largest increases.
The same releases show a technical trap. Statistics Canada notes the indexes aren't seasonally adjusted and that the previous quarter's data may be revised. The second quarter of 2025 was first published at 1.6% and appeared as 1.8% in the next release. A clause has to say which release counts.
Thresholds, caps and sharing
An index-based clause needs more than an index. The CCA bulletin leaves the specific numbers to the parties, but it lists the elements to settle: what triggers relief, how the change is measured, and whether relief is up, down or both, with or without overhead and profit, and with or without a time adjustment.
In practice, owners usually negotiate four controls:
- A threshold. The contractor absorbs movement up to an agreed percentage. Only movement beyond it is adjusted. This keeps normal market noise in the bid price, where it belongs.
- A cap. The maximum adjustment, either per package or for the contract. Gowling notes that clauses may explicitly limit both the amount and the period an adjustment covers.
- Two-way adjustment. If prices fall beyond the threshold, the owner gets a credit. The CCA bulletin notes that a clause that also works as a savings clause can make owners more willing to accept it.
- Scope limits. The clause applies only to named materials or packages, measured from a defined base date to a defined purchase or delivery date.
Timing deserves as much attention as the numbers. If the measurement date is the delivery date, a contractor who buys late in a rising market gets paid for its own delay. Tying the measurement to the scheduled purchase date in the accepted baseline, or to the actual date if earlier, keeps the clause from rewarding slow procurement. The same logic applies to a falling market: the owner shouldn't lose a credit because the contractor bought early at its own choosing.
View the data
| Item | Amount |
|---|---|
| Package value | $2,000,000 |
| Index movement (+12%) | $240,000 |
| Contractor threshold (5%) | $100,000 |
| Owner adjustment (7%) | $140,000 |
| Cap (10%) | $200,000 |
| Credit if index fell 8% | $60,000 |
Tariffs: a special case
Tariffs are partly a price escalation problem and partly a contract interpretation problem. Gowling WLG's 2025 analysis of tariffs under CCDC contracts points out that CCDC 2's taxes and duties provision fixes the contract price on the taxes and duties in force at bid closing, and adjusts the price for later changes. The authors read that wording as including tariffs, which would put tariff risk largely on the owner. The clause doesn't name tariffs, so that reading isn't settled.
Gowling also notes that force majeure usually won't help a contractor with higher costs, because tariffs make performance more expensive rather than impossible. Its recommendations for owners include stating clearly who bears tariff risk, requiring traceable pricing and detailed records of duties from the bid stage, adding audit rights, setting mitigation obligations such as seeking alternative suppliers, and enforcing notice requirements.
One point is easy to miss. If the contract already gives tariff relief through the taxes and duties provision, bidders who add tariff contingencies are charging you twice. Gowling suggests giving all bidders the same tariff assumptions and warning them against adding risk premiums for a risk the contract already allocates. The CCA's own tariff bulletin advises contractors to keep customs and brokerage slips to prove escalation claims, so ask for that evidence as a condition of payment.
A sample clause from the CCA
The CCA bulletin includes example wording intended as an addition to Part 6 of CCDC 2-2020. In summary, it lets either party give timely written notice of a substantial change in product costs beyond what was assumed at signing and seek an equitable adjustment, supported by documentation, through a change order. It gives the contractor a similar right to a time adjustment for supply delays beyond what was reasonably expected.
It's a reasonable starting point, but it's built around "substantial" change and "equitable" adjustment, which leaves a lot to argue about. Owners who want more certainty usually replace those words with a named index, a numeric threshold and a cap.
What owners should do
- Decide before tender whether you'll offer a clause. On long projects or volatile packages, a controlled clause is often cheaper than the premiums bidders will otherwise add.
- Limit it to the packages that matter. Structural steel, rebar, copper-heavy electrical and mechanical equipment are typical candidates. Keep general labour and minor materials in the fixed price.
- Name the index exactly. Give the Statistics Canada table, series, base date, measurement date, and which release governs if figures are revised.
- Set a threshold, a cap and two-way adjustment. Test the formula with sample increases and decreases before tender, as Gowling recommends.
- Deal with tariffs expressly. State who carries tariff risk, what evidence is needed and how bidders should price it.
- Get legal advice on the wording. Escalation, tax and change provisions interact, and a construction lawyer should draft the final clause.
The bottom line
Price risk doesn't disappear when you insist on a fixed price. It moves into the bid as a premium you pay whether prices rise or not. A narrow, index-based clause with a threshold and a cap lets owners pay for real movement only, and keeps bidders competing on the work instead of on their guesses about the market.
Deciding how to handle escalation and tariff risk in your next tender? Book a 30-minute call with Benjamin R. Consulting.
Sources: Canadian Construction Association, Joint TC and GC National Advisory Council bulletin: Price instability (2024); Canadian Construction Association, Managing tariff risks in construction projects; Gowling WLG, Tariffs and your CCDC construction contracts (2025); Gowling WLG, How to counter inflation-related effects in contracts (2021); Statistics Canada, The Daily: Building construction price indexes, second quarter 2025; third quarter 2025; fourth quarter 2025; first quarter 2026; second quarter 2026; Statistics Canada, Table 18-10-0266-01: Industrial product price index, by product, monthly; Statistics Canada, Price Adjustment Guide for Contract Escalation. The worked example is illustrative. This article is general information, not financial or legal advice. Get legal advice on your contract and specific circumstances.