Construction Contracts in Ontario: Key Terms to Know

A construction project involves a lot of moving pieces — trades, materials, schedules, money, and often multiple layers of contractors and subcontractors. The written contract is what ties all of that together, and it’s usually the first document everyone turns to once something goes wrong. A contract that clearly addresses the issues below doesn’t guarantee a smooth project, but it gives both the owner and the contractor a shared, written reference point instead of relying on memory or assumptions.

This article gives a general overview of what a solid construction contract in Ontario typically covers. It’s general information about how these agreements generally work, not a template or a substitute for reviewing the actual terms of a specific contract.

Scope of work. This is the description of exactly what the contractor is agreeing to do — and, often more importantly, what’s excluded. Vague scope language (“renovate the kitchen”) tends to generate disputes once work begins, because the owner and contractor may have pictured different things. A clear scope usually references drawings, specifications, or an itemized list of inclusions and exclusions, so there’s a concrete record of what the price was actually based on.

Price and payment schedule. Construction contracts are generally priced either as a fixed lump sum for the defined scope, or on a cost-plus basis where the owner pays actual costs plus a fee. Either way, the payment schedule matters as much as the total price — most contracts break payment into milestones tied to progress (for example, a deposit, progress payments as phases complete, and a final payment on substantial performance), rather than paying the full amount upfront or only at the very end.

A payment schedule tied to defined milestones also gives both sides a shared way to measure progress — the owner can see, at each payment, roughly what has actually been completed, and the contractor has more predictable cash flow instead of waiting until the very end of the job to be paid for most of the work. Disputes often arise when a milestone is described loosely (“rough-in complete”) without a shared understanding of what that actually means, so more detailed contracts tend to define each milestone with reasonable precision and attach it to a specific dollar amount or percentage of the contract price.

Almost no project runs exactly as originally planned — owners request upgrades, site conditions reveal surprises, or materials become unavailable and need substituting. A change order is the mechanism contracts use to document these adjustments: what’s changing, the cost or credit involved, and any effect on the schedule.

A well-drafted contract generally requires change orders to be agreed in writing before the additional work proceeds. This protects the owner from unauthorized scope creep and protects the contractor from doing extra work without being paid for it. Our article on change orders in Ontario construction contracts goes into more depth on how this process typically works and what tends to go wrong when it’s skipped.

Beyond cost, a change order should also note any effect on the completion date. A project delayed by owner-requested changes is generally treated differently, for scheduling purposes, than one delayed by the contractor’s own performance issues, and a contract that’s silent on this point can leave both sides guessing about who’s responsible for a delay once the original target date has passed.

Ontario’s Construction Act requires owners to hold back 10% of the contract price from payments made to the contractor, generally in order to fund potential lien claims by unpaid subcontractors, suppliers, or workers further down the chain. This holdback requirement applies regardless of what the contract says — it’s a statutory floor, not a negotiable term. Our dedicated article on holdback requirements under the Construction Act covers when and how holdback is released in more detail.

Completion is usually tied to the concept of substantial performance, a defined point under the Construction Act where the project (or most of it) is ready for use, even if minor deficiencies remain. Publishing a certificate of substantial performance is significant because it starts the clock on certain lien deadlines — see our article on the certificate of substantial performance for how that process works.

Most construction contracts include a warranty period during which the contractor remains responsible for fixing defects in workmanship or materials — commonly one year from substantial performance or completion, though this varies by contract. The warranty clause should spell out what’s covered, how a deficiency claim is made, and any limitations or exclusions (normal wear and tear, owner-caused damage, and so on).

For new residential construction, Tarion warranty coverage can also apply on top of the contract’s own warranty terms, adding a separate layer of protection specific to new homes. Deficiencies that surface after a project wraps up are covered in more depth in our article on construction deficiency claims.

It’s worth distinguishing a warranty clause from a deficiency claim made during the project itself. A warranty generally applies after the work is considered complete, covering problems that surface later, while deficiencies identified before completion are typically addressed through the ordinary course of finishing the job — sometimes with a portion of payment held back specifically until an identified deficiency is corrected.

Many Ontario construction projects use, or start from, a standard form contract rather than drafting an agreement from scratch. The best-known examples are published by the Canadian Construction Documents Committee (CCDC), a national body whose documents are widely used as a general reference point for allocating risk, defining key terms, and structuring payment and change processes across the industry.

Standard forms aren’t mandatory, and it’s common for parties to modify them with supplementary conditions suited to a specific project, or to use an entirely custom agreement, particularly for smaller residential jobs. What matters more than which template is used is whether the final, signed document actually addresses the core issues — scope, price, changes, holdback, completion, warranty, and dispute resolution — clearly enough to be useful if a disagreement comes up later.

This article doesn’t reproduce the text of any standard form contract, and nothing here should be read as a summary of a specific CCDC document’s actual terms. Anyone working from a standard form contract should read the particular edition and any supplementary conditions attached to it, since terms can and do vary between editions and between projects.

Finally, many construction contracts specify, in advance, how disagreements will be handled — whether through negotiation, mediation, the Construction Act’s interim adjudication process, arbitration, or court. Knowing which path applies before a dispute happens tends to make resolution faster, since the parties aren’t also arguing about process on top of substance.

Disputes between homeowners and contractors are common enough on smaller residential projects that they’re covered separately in our article on homeowner-contractor disputes. For a broader look at the construction hub, including liens, bonds, and subcontractor agreements, see the construction insights hub, or our tools and checklists for practical reference material. This is general information about how construction contracts generally work in Ontario, not legal advice about a specific agreement — if you have questions about a contract you’re about to sign, reviewing the actual document closely matters more than any general summary.