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By: Amir A. Ghahreman

When embarking on a major commercial construction project, selecting the right contract model is one of the most critical decisions an owner and contractor will make. The choice fundamentally dictates how financial risk is managed, how changes are administered, and how project efficiencies are realized.

While many projects both start and complete under “cost-plus” models where the contractor charges for the actual project costs plus an applicable percentage fee, other projects use a form of “fixed” price model. These fixed-price frameworks can apply either from the outset or at a later milestone in the project.

Owners or contractors considering a fixed price model may be wondering, what are the available fixed price models and how do they differ?

We will discuss three of the most common approaches below.

What is the framework under a CCDC 2 or CCDC 14?

Under a CCDC 2 (Stipulated Price Contract) or CCDC 14 (Design-Build Stipulated Price Contract), the agreement is built on definitive clarity from the outset: the general contractor agrees to perform a full scope of work for a single, fixed lump-sum price.

• The Balance of Risk: Financial risk shifts heavily to Contractor. For example, if a subcontractor’s or supplier’s price spike, Contractor must absorb the increase. Conversely, if Contractor finds efficiencies and completes the project under budget, then they retain 100% of the savings.
• The Benefits: Owner secures substantial budget certainty from day one, assuming the scope remains unchanged. Because the price is fixed, the project requires less administrative overhead for Contractor which comes with the added benefit of creating room for passing some savings to Owner.

Under these frameworks, Contractor will often first be engaged on a pre-construction basis (for a separate fee) to perform preliminary services to help them and Owner better understand the project.

What is the framework under a CCDC 5B with GMP?

A CCDC 5B Construction Management Contract operating with a guaranteed maximum price or “GMP” can provide a more transparent and collaborative philosophy. Here, Contractor builds the project on an “open-book” basis where its project records are available for inspection by Owner. Owner reimburses the actual “Cost of the Work” plus a defined contractor fee, but capped by the GMP ceiling.

• The Balance of Risk: Financial risk is shared to a degree. If the actual cost of construction exceeds the GMP due to Contractor inefficiency, then Contractor absorbs the overrun. Crucially, however, if the actual costs come in under the GMP, then the savings do not automatically go to Contractor; instead, depending on how the contract is drafted, the savings may either revert entirely to Owner or be shared between the parties based on a pre-agreed split.
• The Benefits: Owner gains visibility and audit rights over subcontractor bids and material receipts, while both the owner and contractor are incentivized to complete the project below the GMP ceiling.

Is there another available framework under CCDC 5B?

An increasingly popular procurement strategy leverages the strengths of both models sequentially. The project begins under a CCDC 5B “cost-plus” model during pre-construction, allowing Owner to utilize Contractor’s early expertise in budgeting, scheduling, and value engineering while the design is finalized.

Once design documents reach maturity and trade packages are largely tendered, the parties execute an amendment to “flip” the contract into a Stipulated Price contract.

When properly managed, this transition is a win-win:

• For Owner: It provides deep transparency during the critical design-development phase, followed by total budget certainty and hands-off management during active construction.
• For Contractor: It allows them to thoroughly understand the site conditions and design intent before fixing their price, significantly reducing their exposure to unpriced risks while opening the door to performance-based savings during construction.

However, parties must keep in mind that there is no guarantee the “flip” will occur if they are ultimately unable to agree on the final stipulated price. Navigating this transition smoothly depends heavily on well-drafted supplementary conditions that clearly define the timeline, the required level of design maturity, and the fallback pricing mechanism should negotiations stall.

Conclusion: How Do You Draft for Project Success?

Whether opting for the immediate predictability of a CCDC 2, the collaborative transparency of a CCDC 5B GMP, or a strategic cost-to-stipulated conversion under a CCDC 5B, safeguarding a project requires translating a firm’s commercial approach and risk analysis into a robust legal framework. This is where proactive contract drafting becomes critical. The ultimate goal is never to shift risk unfairly, but rather to use tailored contract provisions to clearly allocate that risk to the party best-equipped to manage it, ensuring your commercial expectations are legally enforceable throughout the project lifecycle.

>Looking Ahead: Cross-Border Variables

While design maturity and pricing models establish your project baseline, global market volatility can test even the most robust contract structures. A prime example is the sudden imposition of cross-border trade tariffs on key construction materials like steel or aluminum. How these unexpected import duties are handled depends entirely on nuanced provisions within standard contract General Conditions. These rules dictate whether a tariff triggers a legitimate contract price adjustment under a CCDC 2 fixed-price model, or if it simply winds up squeezing a fixed GMP cap under a CCDC 5B model. In an upcoming publication, we will unpack how global trade policy interacts with these contract models.

If you have any questions regarding this article, please contact the author, Amir A Ghahreman, or any member of our Construction Law group.