Construction 

Contracts 

in 

Workplace 

Renovations: 

Stipulated-Sum 

or 

Cost-Plus?

Construction contracts can be difficult to navigate, especially for clients encountering them for the first time. Choosing between a cost-plus contract and a stipulated sum contract involves understanding how each one allocates risk, manages budget expectations, and supports the project’s goals. Both contract types offer distinct benefits and limitations, and each is better suited to specific project conditions.

By gaining a solid understanding of how these agreements work, you’ll be better equipped to make informed decisions before entering into a construction contract. The sections below outline the key advantages and disadvantages of cost-plus and stipulated-sum contracts, along with guidance on determining which option aligns best with your project needs.

What is a Stipulated-Sum Contract?

A stipulated sum contract, also called a lump-sum or fixed-fee contract, is a contractual agreement in which the contractor agrees to complete the project for a predetermined price.

A stipulated-sum contract binds the contractor to be accountable for project execution at a predefined cost. The tenant has delegated the risk of project costs to the contractor. As a result, if the actual labour and material costs exceed expectations, the contractor’s profit would be reduced. In contrast, if the actual costs are lower, the contractor’s profit increases. Overall, the price for the tenant stays the same in either case.

Advantages

• Predictability
• Efficient timeline
• Less financial risk
• The set price will not change (Financing for project is far more accessible)

The key benefit for clients is cost certainty. There are no changes to the costs / Change Orders unless directed by the client. The owner can expect the project to be finished on time and on budget. Clients face less financial risk with stipulated sum contracts because the contractor is accountable for cost overruns. Furthermore, supervision is minimal because the client does not need to track costs. Financing is simplified because payment structures for stipulated-sum contracts can include periodic payments at defined intervals or as a percentage of completed work, streamlining accounts payable operations.

Disadvantages

• It is disruptive and costly to adjust your scope of work once construction has begun.

A stipulated sum contract requires that both parties agree on the scope of work. It is the only way for the contractor to provide an exact bid and to execute the project as agreed. It also means that these contracts cannot be too flexible. Furthermore, when a stipulated sum contract is agreed upon, the contractor assumes all the risk involved with bringing the project to completion. If the project goes over budget, the contractor handles any cost overruns.

What is a Stipulated Sum Contract Best for?

Stipulated-sum contracts are best for projects with a clear vision. These contracts are most effective for projects with finished plans, well-defined scopes and schedules, and comprehensive documentation of all evaluations and other pre-construction operations. These factors are critical in allowing parties to estimate project expenses and offer the lump-sum amount accurately.

What is a Cost-Plus Contract?

A cost ‑plus contract, also referred to as a cost-reimbursement contract, provides payment to the contractor for all allowable project expenses along with an agreed ‑upon fee. This fee is typically calculated as a percentage of the reimbursable costs and is intended to account for the contractor’s profit. Because the fee is tied to actual costs, the structure can influence how project expenses are managed.

Cost-plus contracts differ from stipulated sum contracts in that there is no set fee. Instead, the tenant agrees to pay the cost of the work, including all trade subcontractor work, labour, materials, and equipment, plus an amount for the contractor’s overhead and profit. Moreover, if actual costs are lower than projected, the client saves and receives the difference. However, the client must absorb the cost overruns when the actual costs exceed the predicted expenses.

Advantages

• Costs are decided by what the tenant requests.
• Better balance of responsibility, managing costs between the contractor and the buyer

The advantage of a cost-plus contract is that it allows flexibility to help the project achieve the client’s vision. The client’s preferences determine the costs and can be as high or low as desired. There is an increased balance of responsibilities for cost management between the contractor and the client. Tenants are more involved in decisions such as tradespeople/subcontractors’ decisions and material selection based on price and quality.

Disadvantages

• More supervision from the tenant is needed
• Client takes on more of the risk with cost fluctuation

Cost-plus contracts are harder to track, and more supervision is needed. Although tenants have a more significant say in major decisions, this means they will need to dedicate more time to the project, which may take time away from other job responsibilities. There is also a greater risk of cost and schedule overruns because there is little incentive for the head contractor to ensure subcontractor quotes are accurate, keep on schedule, or keep costs low. If there are change orders due to a design mistake or lack of documentation, you are at risk of schedule and cost exposure. Overall, a cost-plus contract is not structured to drive the best value or savings for the client.

What are Cost-Plus Contracts Best for?

Cost-plus contracts are best suited for projects when it is hard to foresee the final expenses or when there is insufficient information to make a precise estimate due to incomplete final designs.

Aura’s Integrated Process and Stipulated Sum Contract

An integrated design–build approach combines planning, design, and construction within a single coordinated process. Instead of managing separate contracts or navigating multiple handoffs, the client works with one team from early concept through to project completion. This structure streamlines communication, reduces administrative steps, and allows the design and construction teams to align decisions more efficiently.

Under this model, Aura uses progressive budgeting during the design phase, typically at the 15%, 30%, and 60% drawing milestones, so the project cost becomes increasingly clear as the design develops. Once the design is finalized, a stipulated sum contract is executed for the construction phase. This provides a defined project price before construction begins, offering cost predictability and reducing the likelihood of later budget adjustments. Aura assumes responsibility for both design and construction outcomes, taking on the associated financial and scheduling risks once the final cost is agreed upon.

Transform Your Office with Aura’s Design-Build Expertise

Is your office space in need of a transformation, but you’re worried about the risks associated with a renovation? Discover the ultimate solution with Aura, your trusted commercial interior design and construction management company. Discover how our integrated approach and stipulated-sum contract can reduce timing and budget risks.

Contact us to schedule a consultation and speak with an Aura workplace specialist today.