Cost · September 17, 2026 · 10 min read

How Contractors Price a Commercial Project

A commercial construction estimate is four things stacked together: hard cost, soft cost, allowances and contingency. The reason two bids for the same space can differ by thirty percent is almost never that one contractor is cheaper — it is that the four layers were drawn differently, and the cheaper number is usually the one carrying the smallest allowances and the longest exclusions list. This guide takes the estimate apart, defines each term as it is actually used in a Canadian contract, and sets out the questions that turn three incomparable bids into a genuine comparison. It applies equally to ground-up commercial construction and to commercial renovation inside an existing envelope.

Key takeaway. Hard cost is the building: $120–$220 per sq ft for general commercial construction, $95–$180 per sq ft for renovation inside an existing layout. Soft cost adds 15–30% on top and is not in that band. An allowance is money for work you know is coming but cannot price yet. A contingency is money for what you have not found yet. A change order is agreed before the work; a change directive is not.

What an Estimate Is Actually Made Of

Every commercial estimate, however it is formatted, is these four layers. Confusion between them is where most disputes start.

The single most common misreading of a construction quote is treating the hard cost number as the project budget. It is the largest component and it is not the total.

Hard Cost and Soft Cost: Where the Line Falls

Hard cost is the cost of physically building the work. It is what a per-square-foot rate means, and the rates we publish on our service pages are hard cost:

Soft cost is everything else the project requires and the construction contract does not include:

• architectural and engineering design fees
• building permit and development fees
• a building code consultant, where the occupancy classification is changing
• a hazardous materials survey, which in a pre-1990 building is not optional
• commissioning and testing
• legal and accounting on the lease and the contract
• furniture, IT, audio-visual and telephony
• signage and branding
• moving, temporary space and double rent during the overlap

On a commercial fit-out, soft cost commonly adds 15 to 30 percent on top of the construction number. The two ends of that range are mostly about design complexity and how much furniture and technology the space needs.

The practical consequence: if a landlord's tenant improvement allowance is quoted per square foot, check whether your lease permits it to be drawn against soft cost at all. Many allowances can only be claimed against construction, which means the design fees and the IT come out of your own capital. Our guides to what a tenant improvement allowance covers and base building versus tenant improvement set out where those lines usually fall.

What a Cash Allowance Is, and What It Hides

A cash allowance is a sum of money carried inside the contract price for work whose details are not yet known. The Canadian standard form is direct about the purpose: where precise details of certain portions of the work are unknown at the time of calling bids, bidders may be required to include a cash allowance in the bid price. The textbook example is a utility connection, where the utility provides an estimate at the outset and the actual cost is only known once the work is done.

Three things to understand about allowances, because this is where bid comparisons quietly fail.

An allowance is a placeholder, not a price. If the allowance for a signage package is $15,000 and the package costs $28,000, you pay $28,000. The contract price moves.

Whoever sets the allowance controls the bid. If each bidder picks their own allowance for flooring, you will receive three prices for three different floors and the lowest will be the thinnest allowance. Set the allowances yourself, in the tender documents, at the same amount for everybody. This is the single most effective thing an owner can do to make bids comparable.

Under CCDC 2 – 2020, allowances can now be pooled. The 2020 edition permits the consultant to combine all cash allowances, so that unexpended amounts from one allowance can cover a shortfall in another, and the contract price does not change unless the actual cost under all the allowances exceeds their total. That is generally good for an owner — an overspend on one item can be absorbed by an underspend elsewhere rather than becoming an extra. It also means the individual allowance figures matter less than their sum, which is worth knowing when you read a schedule of allowances.

Contingency Is Not an Allowance

The distinction is simple and it is routinely blurred.

• An allowance is money for work you know is coming and cannot yet price.
• A contingency is money for work you do not yet know exists.

Under CCDC 2, expenditures from a contingency allowance are authorised and valued through the change provisions — GC 6.1, the owner's right to make changes; GC 6.2, change order; GC 6.3, change directive. In other words a contingency is not a slush fund the contractor draws on. Spending it is a change, and it goes through the change process.

For a commercial renovation, 10 to 15 percent contingency on the construction value is a normal posture in a building you know well, and more in a building you do not. For clinical fit-outs the published standard is higher — 15 to 20 percent — because ceiling space and existing services hold more surprises.

The question that actually matters is who holds it. A contingency inside the contractor's price behaves differently from one you hold yourself. If it is in their number, ask what happens to the unspent portion. If it is in yours, ask what the process is for releasing it, so that finding something above a ceiling does not stop the job for a week while somebody hunts for authority.

Change Order or Change Directive?

Two instruments, and the difference is whether the price was agreed first.

A change order is the better position and should be the default. The price, the schedule impact and the scope are settled and signed before anybody picks up a tool.

A change directive exists because sometimes work genuinely cannot wait — something is found in a wall and stopping the trade sequence costs more than the change itself. The cost is then valued afterwards under the contract's rules. CCDC 2 – 2020 tightened this, clarifying that costs considered in valuing a change directive may only be charged if they contribute directly to implementing that change directive. That clarification exists because the old wording invited general overhead to be attached to directives.

What to put in your contract regardless of the form used: who on your side can authorise a change, a dollar threshold above which written authorisation is required before work proceeds, and a rule that any schedule impact is stated at the same time as the price. A change order that adjusts the money and stays silent on the date is half a change order.

Why Two Bids for the Same Space Differ by Thirty Percent

Five reasons, in order of how often they turn out to be the answer.

1. They assumed different things about the base building. One bidder priced an electrical upgrade and the other assumed the existing service was adequate. One allowed for asbestos abatement in a pre-1990 building and the other did not. This is the largest single cause and it is invisible unless you ask.

2. The allowances were set at different amounts. See above. Fix it by setting them yourself.

3. The exclusions lists differ. The cheapest bid is almost always the one that excluded the most. Common exclusions on a commercial fit-out: mechanical upgrades, fire alarm modifications, after-hours premiums, landlord-required insurance and deposits, commissioning, and making good the landlord's base building.

4. One carried a contingency and the other did not. A bid with 12 percent contingency will always lose to an identical bid with none, and will always be the more honest document.

5. Different scope was inferred from the same drawings. Drawings at 50 percent design development are read differently by different estimators. The cure is a written scope narrative, not more drawings.

None of those five is dishonesty. All five are the predictable result of asking three companies to price an incompletely defined project. The fix sits with the owner.

What to Ask Before You Sign

Eleven questions. They take twenty minutes and they are the difference between a contract price and a starting price.

1. What is in hard cost, and what soft costs am I carrying separately?
2. What allowances are in this price, and what is each one for?
3. Are the allowances pooled, or held individually?
4. What contingency is in this price, who holds it, and what happens to the unspent portion?
5. What did you assume about the base building — electrical capacity, mechanical, structure, hazardous materials?
6. What is your exclusions list?
7. What is the change order process, what is the threshold for written authorisation, and will schedule impact be stated with price?
8. Is a hazardous materials survey included, and if the building predates 1990, who is arranging it?
9. What after-hours or phasing premiums are in the number, and what does the landlord require?
10. Who is the site supervisor, and how many other jobs will they be running?
11. What is the payment schedule tied to, and how is the Builders Lien Act holdback handled?

That last one is not optional. The Builders Lien Act requires a 10% holdback on payments to the prime contractor and down the chain, held for 55 days from the earlier of the issuance of a certificate of completion or the completion, abandonment or termination of the head contract. Forty-five days of that window is the lien filing period; the remaining ten covers Land Title Office processing.

Conclusion

An estimate is not a number, it is four layers, and the arguments all happen where the layers meet. Read hard cost as the building only, add 15 to 30 percent for soft cost before you call it a budget, set the allowances yourself so the bids are comparable, and settle who holds the contingency before anybody opens a ceiling. Then insist on change orders rather than directives wherever there is time to price the work, because a price agreed in advance is the only version of a change that does not become a conversation about overhead. If you are at the stage of choosing who to ask, our ten questions for a contractor and the difference between design-build and general contracting cover the decision that comes before this one, and our commercial tenant improvement cost guide covers the rates themselves.