Part of the Ontario construction contracts guide for owners.
Every construction contract answers one question before any other: who pays when the work costs more than expected? Stipulated price, cost-plus and guaranteed maximum price (GMP) contracts give three different answers. Owners often pick between them by habit, or because a contractor proposed one, rather than by matching the pricing model to how much the project is actually defined.
This guide compares the three pricing models from the owner's side: where the cost risk sits, when each one fits, and the contract terms that decide whether the model works as intended. If you're choosing between specific CCDC forms, our comparison of CCDC 2 vs CCDC 5B covers the documents themselves. This article is about the money.
Three ways to pay a contractor
Stipulated price (also called lump sum or fixed price) means the contractor agrees to deliver the defined work for a single price set in advance. The Canadian standard form is CCDC 2. The CCDC describes it as a fixed price that applies regardless of the contractor's actual costs. If the contractor's costs come in high, it absorbs the loss. If they come in low, it keeps the difference.
Cost-plus means the owner reimburses the contractor's actual cost of the work and adds a fee for overhead and profit. The fee can be a percentage of cost, a fixed amount or a mix. The Canadian standard form is CCDC 3. The owner carries the cost risk, and the final price isn't known until the work is done.
Guaranteed maximum price is a cost-plus arrangement with a ceiling. The contractor is paid cost plus fee up to the GMP, and costs above it are the contractor's problem unless the scope changes. Below the GMP, savings go back to the owner or are shared under an agreed formula. In Canada, the GMP usually appears as an option within a construction management contract. CCDC 5B starts on a cost-plus basis and lets the parties elect a GMP, a GMP plus a share of cost savings, or a conversion to a stipulated price.
Where the cost risk sits
The clearest way to compare the models is to run the same project through each of them. In the illustrative example below, the contractor estimates the cost of the work at $10.0 million and its fee at 5%. Under stipulated price, it bids $10.8 million, which includes the fee plus a margin for risk. Under the GMP, the ceiling is also $10.8 million, with savings below it split 50/50. Then we look at two outcomes: costs come in at $9.6 million, or they run to $11.0 million.
View the data
| Pricing model | Owner pays if cost is $9.6M | Owner pays if cost is $11.0M | Range |
|---|---|---|---|
| Stipulated price | $10.80M | $10.80M | $0.00M |
| GMP (50/50 savings) | $10.44M | $10.80M | $0.36M |
| Cost-plus 5% fee | $10.08M | $11.55M | $1.47M |
The pattern is the point. Cost-plus gives the owner the best result when things go well and the worst when they don't. Stipulated price gives the same answer either way, and the owner pays for that certainty through the risk margin in the bid. The GMP sits in between: the owner keeps part of the upside and is protected on the downside, as long as the ceiling holds.
That "as long as" matters. Contractors don't take risk for free. A stipulated price includes a premium for the risk the contractor is carrying, and a GMP is usually set with room above the expected cost, because the contractor is guaranteeing it. Law firm Clifford Chance notes that a GMP is a "softer" number than a lump sum, and that its real value depends on how rigorously it was checked before signing.
When each model fits
Stipulated price fits when the design is complete. A fixed price is only as firm as the documents it's based on. With finished drawings and specifications, competitive bidding gives the owner a market price and the contractor can price risk sensibly. With incomplete drawings, the "fixed" price turns into a starting point for change orders. Our guide to managing change orders covers what happens next.
Cost-plus fits when the scope can't be defined. Emergency repairs, investigative renovation of an old building, work in an occupied facility where conditions will only be known once walls are opened, or a fast-track project that has to start before design is finished. A Canadian law firm summary describes cost-plus as useful for fast-track work and when a fixed price can't be obtained, while noting that the owner carries more overrun risk and that project management becomes more complex.
A GMP fits when design is advanced but not complete, and the owner wants early contractor input without carrying open-ended risk. It's common on construction management projects, where the construction manager joins during design, prices the work as it develops, and converts to a GMP once enough is known. The timing of that conversion is the key decision. Set a GMP too early and it will be padded to cover the unknowns. Set it too late and the owner has carried cost-plus risk for most of the job.
View the data
| Factor | Stipulated price | GMP | Cost-plus |
|---|---|---|---|
| Cost overrun risk | Contractor | Contractor above the ceiling | Owner |
| Price known | At contract signing | When GMP is set | At completion |
| Design needed | Complete | Advanced | Any stage |
| Savings go to | Contractor | Shared, by formula | Owner |
| Audit rights | Changes only | Essential | Essential |
| Owner effort | Lower | High | Highest |
The terms that make or break a cost-plus or GMP contract
With a stipulated price, the owner mostly cares about the scope and the change process. With cost-plus or a GMP, the owner is paying actual costs, so the definitions behind those costs matter far more. These are the terms we review first.
The definition of cost
Everything reimbursable should be listed: labour at actual rates, materials, subcontracts, equipment, site staff, temporary facilities. Everything that belongs in the fee should be excluded from cost: head office overhead, executives' time, general insurance, profit. When the line between cost and fee is vague, the same expense can be paid twice, once as a reimbursable and once inside the fee. Clifford Chance's guidance makes the same point: tight definitions of cost and fee usually produce more real savings for the owner than a generous savings split does.
Audit rights
An owner paying actual costs needs the right to inspect the records behind them: invoices, payroll, subcontract payments and rebates. Audit rights should cover the full project and a reasonable period after final payment. The 2025 edition of CCDC 5B extended the owner's right to audit Cost of the Work records under the GMP option to up to one year, from 60 days in the 2010 edition, according to BLG's summary of the update. Owners using older forms, or cost-plus contracts without a clear audit clause, should look hard at this.
Fee basis
A percentage fee rises with cost, which gives the contractor no reason to keep costs down. A fixed fee, or a percentage fee that converts to a fixed amount once the scope is set, removes that incentive. Some owners also stop paying fee on rework caused by the contractor's own errors.
Shared savings
A savings split gives the contractor a reason to beat the GMP, but it can also reward a padded GMP. If the ceiling is set $500,000 above realistic cost, a 50/50 split pays the contractor $250,000 for "savings" that were never at risk. The protection is an independent estimate of the GMP before it's accepted, not the split itself. The OAA's practice tip on construction management contracts adds a practical warning: with shared savings, expect more substitution requests, because every cheaper alternative now earns the contractor money.
What adjusts the GMP
The GMP should move only for owner-directed changes and risks the owner has expressly accepted. If contractor errors, buyout shortfalls or vague "design development" can increase it, it isn't much of a ceiling. Check how the contractor's contingency inside the GMP is defined, who can draw on it, and what happens to any unspent balance.
Common mistakes we see
- Calling a contract stipulated price when the design isn't finished. The price is fixed on paper, but every gap in the drawings becomes a change order priced without competition.
- Treating a GMP as a fixed price. A GMP limits the owner's exposure only for the defined scope. Owner changes, allowances and excluded items sit outside it. Clifford Chance also warns that the protection is partly illusory if a contractor spends the GMP before the work is finished: the owner is then relying on the contractor's ability to finish at its own cost.
- Signing cost-plus without cost controls. Cost-plus works when the owner gets regular cost reports, a current forecast and the right to approve major purchases and subcontracts. Our guide to construction cost forecasting covers how to read those forecasts.
- Ignoring the owner's own contingency. The pricing model moves risk between owner and contractor, but owner risks like scope changes, unknown site conditions and permit delays don't disappear. Our guide to construction contingency covers how to size that allowance under each model.
What owners should do
- Match the model to the design. Before choosing, ask how complete the drawings will be when the price is set. Complete: stipulated price. Advanced but not finished: a GMP. Unknowable: cost-plus with strong controls.
- Get an independent estimate before accepting any GMP. A cost consultant or owner's rep should check the GMP against the design, line by line, including the contractor's contingency and allowances.
- Define cost and fee in writing. List reimbursable and non-reimbursable items in the contract, and make sure nothing appears in both.
- Keep audit rights, and use them. Audit at least once during the job, not just at the end, so problems surface while they can still be fixed.
- Get legal advice on supplementary conditions. Fee terms, savings splits and GMP adjustment clauses are where the standard forms most often need tailoring.
The bottom line
No pricing model removes risk. Each one decides who carries it and what the owner pays for that arrangement. Stipulated price buys certainty with a risk premium. Cost-plus saves the premium but leaves the owner exposed. A GMP can offer a middle path, but only when the ceiling has been tested and the definitions are tight. Pick the model that matches how well you know the project, then put your effort into the terms that make it work.
Weighing up a stipulated price, cost-plus or GMP contract for your next project? Book a 30-minute call with Benjamin R. Consulting.
Sources: CCDC Standard Construction Documents (descriptions of CCDC 2, 3 and 5B); Canadian Construction Association, Make the CCDC 3 Cost Plus Contract Work for You; BLG, 2025 CCDC construction contract updates (July 2025); Gowling WLG, Updates to the 2025 CCDC construction management contracts; Ontario Association of Architects, Practice Tip PT.23.2: CCDC Construction Management Contracts; De Grandpré Chait via Mondaq, The most important and common types of construction contracts (2023); Clifford Chance, Cost-plus guaranteed maximum price contracts; Guaranteed maximum price (Wikipedia). The worked example is illustrative. This article is general information, not legal advice. Get legal advice on your contract and specific circumstances.