To what extent are estimates binding in contracts?

Question

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?

Answer 1

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.

Answer 2

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.