Neither contract type is safer in every case. A fixed-price contract is safer when your scope is clearly defined and drawings are complete, because the contractor carries the risk of cost overruns and you know your total upfront. A cost-plus contract is safer when the scope is uncertain or likely to change, because you pay actual costs plus an agreed fee and can see where every dollar goes. If you’re asking Edmonton general contractors to quote your project, the contract type you choose determines who absorbs the surprises.

The sections below explain how each contract works, where each one fails, and how to pick the right structure for your build, renovation, or commercial fit-out.

What Is a Fixed-Price Construction Contract?

A fixed-price contract (also called a stipulated sum or lump-sum contract) sets one total price for a defined scope of work. The contractor agrees to deliver everything in the contract documents for that amount.

How it works in practice:

• The contractor prices labour, materials, subcontractors, permits, overhead, and profit into a single figure
• You pay according to a schedule, usually tied to milestones
• If costs rise within the agreed scope, the contractor absorbs them
• If you change the scope, the contractor issues a priced change order

Advantages

• Price certainty, which makes financing and budgeting easier
• Lower financial risk for the owner
• Simple to compare across competing bids
• Strong incentive for the contractor to work efficiently

Disadvantages

• Requires a detailed, complete scope, or gaps become disputes and change orders
• Contractors often include a risk premium in the price to cover unknowns
• Less visibility into where the money goes
• Changes mid-project can be expensive, since the contractor sets the price of each one

What Is a Cost-Plus Construction Contract?

In a cost-plus contract, you pay the actual, documented cost of labour, materials, and subcontractors, plus a fee for the contractor’s overhead and profit. The fee is either a percentage of costs or a fixed amount.

How it works in practice:

• The contractor invoices actual costs with receipts and subcontractor invoices
• You review and approve costs as the project progresses
• The fee is added on top, as agreed in the contract
• A budget estimate is usually provided, sometimes with a guaranteed maximum price (GMP) or a cap

Advantages

• Transparency into real costs
• Flexibility to adjust scope as the project evolves
• No inflated risk premium for unknowns
• Well suited to older buildings with hidden conditions

Disadvantages

• Final cost is uncertain unless a cap is set
• Requires your active oversight of invoices and decisions
• A percentage fee can reduce the contractor’s incentive to control costs
• Harder to compare against fixed-price bids

How Do the Two Contract Types Compare?

What Other Contract Structures Exist?

• Cost-plus with a guaranteed maximum price (GMP). You pay actual costs plus a fee, but the total cannot exceed an agreed ceiling. Savings are sometimes shared. This blends the transparency of cost-plus with some of the certainty of fixed price.
• Time and materials. You pay hourly or daily rates plus materials. It suits small repairs and unclear tasks, but offers the least price certainty.
• Unit price. Specific items are priced per unit, such as concrete per cubic metre, which suits civil and commercial work where quantities may vary.

Our guide on how much a general contractor charges in Edmonton explains how fees and markups sit inside each of these structures.

Which Contract Type Fits Your Project?

Choose fixed price when:

• Drawings and specifications are complete
• The scope is unlikely to change
• You need a firm budget for a lender or investor
• It is a new build or a straightforward renovation on a known structure

Choose cost-plus when:

• You are renovating an older home with unknown conditions
• The design is still evolving
• You want to see and control actual costs
• You are comfortable reviewing invoices regularly

Consider cost-plus with a GMP when:

• You want transparency but also need a budget ceiling
• The project is large or phased

What Risks Should You Watch for in Each Contract?

In a fixed-price contract

• Vague scope. Anything not described can be treated as an extra. Make sure inclusions and exclusions are written clearly.
• Low allowances. A contractor can win the bid with unrealistic allowances and recover the difference later.
• Underbidding. A price far below competitors can lead to cut corners, change-order pressure, or a stalled project. Our article on red flags when hiring a general contractor in Edmonton covers this pattern.

In a cost-plus contract

• No cap or budget estimate. Without one, costs can drift upward without a clear stop point.
• Unclear reimbursable costs. Define what counts as a project cost (site supervision, equipment, temporary facilities) and what is covered by the fee.
• Weak documentation. Require receipts, invoices, and regular cost reports.
• Percentage fees on rising costs. Consider a fixed fee so the contractor’s earnings do not grow with every overrun.

How Do Change Orders Work Under Each Contract?

Change orders matter in both structures. The contract should require that any change to scope, cost, or schedule is documented in writing and signed by both parties before the work proceeds.

• Fixed price: The contractor prices the change, and you accept or decline it.
• Cost-plus: Changes flow into the actual cost, but you should still approve them and track the impact on the budget.

Verbal agreements on site are a common source of disputes under either structure.

What Should Be Written Into Any Construction Contract?

Whichever structure you choose, the contract should include:

1. Full scope of work and exclusions
2. Price or cost-plus formula, with any cap or GMP
3. Payment schedule tied to milestones
4. Start date and completion date
5. Change-order procedure
6. Allowances, with stated amounts
7. Insurance and WCB Alberta requirements
8. Holdback terms under Alberta’s construction lien legislation
9. Warranty terms
10. Dispute resolution and termination provisions

A construction lawyer can review the contract before you sign, especially on larger projects.

How Do Contract Types Affect Holdbacks and Liens in Alberta?

Alberta’s lien legislation requires owners to hold back a portion of payments for a set period to protect unpaid subcontractors and suppliers. This applies regardless of whether the contract is fixed-price or cost-plus. In a cost-plus contract, where you approve many invoices, record-keeping matters even more. Confirm how holdbacks are calculated, when they are released, and how the contractor proves subcontractors have been paid. Check current requirements with the Alberta government or a construction lawyer.

Questions to Ask Before Choosing a Contract Type

1. Which structure do you recommend for this project, and why?
2. How complete are the drawings, and what could change the scope?
3. If cost-plus, will you provide a budget estimate and a cap?
4. How are allowances set and reconciled?
5. How do you document and price change orders?
6. How often will you report costs and progress?

If you want the full vetting checklist before you sign, see our guide on how to choose a general contractor in Edmonton.

Choose a Contract That Fits Your Project

If you’re unsure which structure suits your build, talk to BelVan Construction. We’ll review your scope, explain the options, and recommend a contract that protects your budget and timeline.