What makes a Calgary cost plus contract risky?

A cost plus contract shifts all financial risk to you, the homeowner — the contractor gets paid no matter what the project costs, which removes their incentive to control spending.

This type of contract is common in Calgary's custom home and major renovation market, and it's not inherently bad — but it requires a level of trust and transparency that you need to actively protect yourself with.

How Cost Plus Works

The contractor charges you their actual costs (labour, materials, subcontractors) plus a fee — either a fixed fee or a percentage markup, typically 10–20% in the Calgary market. On a $300,000 renovation, a 15% markup means $45,000 in contractor profit. If costs balloon to $400,000, their fee grows to $60,000. You can see the problem: a percentage markup gives the contractor zero financial incentive to keep costs down, and may actually reward overruns.

The Real Risks in Calgary's Market

Material cost volatility is a genuine concern here. Calgary has experienced significant swings in lumber, steel, concrete, and fixture pricing — especially post-2020. Under a fixed-price contract, the contractor absorbs those swings. Under cost plus, you absorb every dollar of every price increase, with no cap unless your contract explicitly includes one.

Labour cost exposure is equally significant. Calgary's construction market runs hot during boom periods, and subcontractor rates can shift mid-project. If your contractor brings in trades at higher rates than originally discussed, that cost flows directly to you. Without a detailed schedule of values or pre-agreed subcontractor quotes locked in, you're writing a blank cheque.

Markup on markup is a less obvious risk. Some cost plus contracts allow the contractor to mark up subcontractor invoices, material deliveries, equipment rentals, and even disposal fees. If this isn't clearly defined in your contract, you may be paying 15% on top of costs that already include the sub's own markup.

How to Protect Yourself

If you're entering a cost plus arrangement, insist on these protections in writing:

• A Guaranteed Maximum Price (GMP) clause — the contractor cannot exceed this without your written approval
• Open book accounting — you receive copies of all invoices, receipts, and subcontractor quotes
• A fixed fee rather than a percentage markup, so the contractor has no incentive to let costs grow
• A contingency allowance that is clearly defined and requires your approval to draw from
• Pre-approved subcontractor bids before work begins
• Regular (weekly or bi-weekly) cost reporting so you're never surprised

Alberta's Prompt Payment and Construction Lien Act (PPCLA) gives contractors the right to lien your property for unpaid work, and gives you the right to withhold a 10% lien holdback for 60 days after substantial completion. Understand this before signing anything — it applies regardless of contract type.

When Cost Plus Makes Sense

Cost plus is reasonable for highly complex custom projects where scope genuinely can't be defined upfront — a full custom home on an acreage in Rocky View County, for example, or a major renovation involving unknown structural conditions. In those cases, a fixed-price contract is often just a fiction anyway, padded with contingency.

For more defined scopes — a basement development, a kitchen reno, an addition with clear drawings — push for a fixed-price or stipulated-sum contract instead. It's cleaner and protects your budget.

Browse experienced Calgary contractors in our directory at Calgary Construction Network — a reputable contractor will be transparent about contract structure and happy to walk you through the numbers before you sign.