Why renovations go over budget, and how to handle change orders

Renovations usually go over budget for five reasons: the scope was incomplete, conditions behind the walls were worse than expected, the owner changed or upgraded things mid-project, allowances were too low, or the contract was open-ended (time and materials or cost-plus without a ceiling). The protection is the same in every case: a detailed scope, realistic allowances, unit prices for unknowns, a contingency you control, and a rule that no extra work starts without a signed written change order stating the price, the tax and the effect on the schedule. In Ontario, the Consumer Protection Act, 2002 also generally prevents a supplier from charging more than 10% above an estimate in a consumer agreement unless you agree to changed work.

This guide belongs to the pitfalls and official sources overview. See also how much contingency to keep, renovation contract checklist and disputes with a contractor.

The five causes in detail

1. Incomplete scope

If the scope does not mention baseboards, door casings, a new shut-off valve or patching the ceiling below, they will appear as extras. Each extra priced on its own, mid-project, tends to cost more than it would have in a competitive quote at the start.

2. Hidden conditions

Rot under a tub, an undersized beam, aluminium or knob-and-tube wiring, cast-iron drains with cracks, or asbestos-containing material in old flooring. Nobody can price these without opening up, which is why the contract should give unit prices or a process, and why you keep a contingency.

3. Owner changes

Moving an outlet after drywall, choosing a different tile after the order, adding a room. Owner changes are the most controllable cause. Finalise selections before signing, and if you change your mind, accept that it costs money and time.

4. Low allowances

A $5,000 tile allowance in a quote where the tile you like costs $9,000 installed means a $4,000 overrun before the job starts. Check allowances against real prices before you sign.

5. Open-ended contracts

Time-and-materials and cost-plus contracts pass every cost through to you. They suit some projects, but they need a ceiling or a target price, regular cost reports and invoices.

How a change order should work

Keep change orders numbered and filed with the contract. If a contractor refuses to put changes in writing, write the email yourself ("Confirming we agreed today that…") and keep it.

Ontario's estimate rule

If your Ontario contract includes an estimate, the supplier generally cannot charge more than 10% above it unless you agree to additional or different work and the agreement is amended. This does not stop genuine extras that you approve in writing; it stops a total that drifts upward without agreement. Other provinces have their own rules on estimates and contracts; check your consumer protection office.

Worked example: how overruns stack up

Illustrative, Ontario, a $60,000 kitchen (before tax) with a 15% contingency ($9,000):

Extras exceed the contingency by $11,100 − $9,000 = $2,100. With 13% HST, the extras cost $11,100 × 1.13 = $12,543. The two hidden-condition items ($5,300) were what the contingency was for; the island ($4,200) and the tile ($1,600) were choices. Without them, the contingency would have had $3,700 left.

Run your own scenario in the contingency calculator.

Preventing overruns

1. Open up early. Remove a small section of flooring or a ceiling tile before pricing, where possible, to see conditions.
2. Finish design before signing. Choose tile, fixtures, cabinets and lighting.
3. Set realistic allowances based on real quotes for the items you like.
4. Add unit prices for predictable unknowns.
5. Keep a contingency and track it after every change order.
6. Have a weekly money check-in with the contractor on longer jobs.

When overruns become a dispute

If the contractor demands payment for extras you never approved, or stops work until you pay, do not simply pay or withhold everything. Write down what you agreed, what is disputed and why, and propose a meeting. Pay undisputed amounts on time (keeping the holdback). If it escalates, follow the steps in disputes with a contractor.

Related guides

Many overruns surface at inspection time, when an inspector asks for something the scope left out; building permits and inspections explains the stages. Defects that appear after completion are a warranty question rather than a change order; see renovation warranties.

FAQ

Is a 10–20% overrun normal?

Overruns are common, especially in older houses, which is why planning contingencies of 10–20% or more are used. "Normal" does not mean unavoidable; many overruns come from changes and low allowances that can be controlled.

Can a contractor charge for extras without a change order?

That depends on the contract and provincial law. Contracts commonly require written change orders, and Ontario's estimate rule limits unagreed increases. Without written approval, the contractor may have difficulty proving you agreed.

Should I sign a cost-plus contract?

It can be the best fit for older houses with many unknowns or evolving designs, if it includes a ceiling or target price, a defined fee, and full access to invoices.

Sources

• Consumer Protection Ontario — estimates and contract changes
• Ontario e-Laws — Consumer Protection Act, 2002
• Office de la protection du consommateur — renovation contracts in Quebec
• Consumer Protection BC — contracts in British Columbia