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Consider this not too uncommon scenario: Bob asks Rob to do a one-off job. Due to the nature of the job, giving a precise quotation is difficult, so Rob provides an estimate of $5,000 to get the job done. Bob says "ok, let's go ahead".

While doing the job, Rob incurs expenses he did not foresee. However, because he gave only an estimate, not a quotation, he is not worried about that and carries on; because it was only an estimate, he thinks that informing Bob of the extra expenses is unnecessary — he will accept what they factually are.

Finally, the job is all done and Rob sends Bob an invoice for $10,000.

To what extent can Bob dispute the invoice?

Different sources like this, this and this say that an overage about 10-20% would be reasonable, but what does common contract law say on how much Bob actually owes to Rob?

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  • I expect the question would be one of "a meeting if the minds", which is an implied element if a contract. Depending on what representations were made alongside the quote, the contractor should have advised when costs were getting excessive and confirmed his mandate. In the limited (small cases of this order of magnitude) cases I've been involved in amounts awarded were knocked back to about the quoted value. – davidgo Dec 7 '18 at 22:22
  • @davidgo where a quote was provided that's easy — contractor must abide it. In this question there was no quote, only estimate. – Greendrake Dec 7 '18 at 22:25
  • There are two "blames" here, the contractor not saying that they would notify the customer at X% of the contract with an estimate for finishing, and the buyer for not specifying a "do not exceed" amount. I wouldn't be surprised to see 50% of the blame for the overrun assigned to each party, so each one looses $2500. – Ron Beyer Dec 7 '18 at 22:34
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    I should have written estimated, not quoted. (I'm travelling and jetlagged !). My contention is that an agreement is based in a meeting if the minds - so if the contractor said "this is a difficult job to price, maybe arround $5000 but it could turn out yo be a lot more it less depending on what I find when I start", then$10k would, I expect be reasonable. If, in the other hand it's a simple estimate without caviats then the person accepting the quote would reasonably expect it to be done for apprixinately the estimated price - which is generally within 10-20% – davidgo Dec 7 '18 at 22:36
  • This is highly depending on jurisdiction. In some countries it is expressly limited with the estimate, in some, there are rules how much is allowable, in some cases, there is no limit. – Trish Dec 7 '18 at 22:48
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Where a price nor method of determining a price is contained in a contract (not just a building contract) then the contractor is entitled to a reasonable price.

Reasonable is a well established legal term which means what a reasonable person in all the specific circumstances would think is ... reasonable. Yes, I know it’s self-referential.

The existence of an estimate is one of those circumstances. Other circumstances are the scope of the work done, if that scope was agreed or not, if the scope was varied from the original scope and if so how, by whom and in what circumstances, rates and prices that were agreed, normal industry rates and prices etc.

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what does common contract law say on how much Bob actually owes to Rob?

Contract law is premised on the principle of the parties knowingly and willfully committing to the clauses at issue. Since the contract is unlikely to provide any guidance on "pricing methodology", the outcome would depend on the extent to which a reasonable person may say each party knowingly and willfully accepted what the final amount would be.

By default, Rob as a provider is expected or presumed to have a better notion of expenses than Bob. From the start of the work and up until just prior to invoicing, Rob (unlike Bob) had more up-to-date information on the costs that ensued during the process.

Therefore, Rob's decision(s) to incur expenses without first seeking Bob's concurrence makes Rob responsible for those costs (or quite a major portion thereof), since it cannot be said that Bob knowingly agreed to an amount which significantly exceeds the estimate. Ruling otherwise would render the term "estimate" meaningless.

In other words, Rob is on the wrong for presuming that

informing Bob of the extra expenses is unnecessary — he will accept what they factually are.

Had Rob consulted with Bob during the process about the unforeseen expenses, Bob could (1) have been able to direct Rob to cheaper substitutes that would allow Rob to complete the job, or (2) decide to cut losses and pay Rob the amount hitherto earned.

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