Building contracts establish the relationship between a builder and owner. Often however, changes are made to the scope of work during the course of a project that are not anticipated in the contract. This can be due to a variety of reasons including design changes, materials shortages, unforeseen site conditions or design changes requested by the owner. These changes are known as variations. Most building contracts will require variations to be documented in writing prior to work on the variation starting.
But what if the variations haven't been documented in accordance with contractual provisions and/or have not been signed off by the owners?
Such work is considered an unapproved variation and can occur for a variety of reasons. In these cases, a builder will, at first instance, not be entitled to claim payment for unapproved variations under the original contract.
Quantum meruit provides a basis for claiming the value of work done where variations haven't been approved in accordance with the contract. This article will explain the principle of quantum meruit and its application for builders who wish to claim payments for unapproved variations.
What does quantum meruit mean and how does it apply to construction contracts?
In the context of construction contracts, quantum meruit is a principle commonly applied to claim for remuneration for work completed or material supplied that is outside the scope of the original contract, or where the contract does not provide directions for payment of additional work.
Under what conditions can a quantum meruit claim be justified in the context of an unapproved variation?
- In NSW, there are several key components of a quantum meruit claim, These include: The work performed must fall outside the scope of the original contract.
- The owner must have had actual knowledge of the variation as it is being done and understand that the work is outside the scope of the original contract.
- The homeowner must be aware that the builder expects payment for variation of work.
- The builder must provide evidence that the claimed amount was fair value for the work performed.
When deciding a reasonable sum for a variation, the court will take several factors into account including;
- The commercial rate for the work;
- The overall contract price, and whether the contract refers to certain prices or formulas;
- The conduct of the parties;
- The quality of work; and
- Site conditions.
A number of these questions may require expert evidence.
Practical advice to maximise the success of a quantum meruit claim:
- Maintain detailed documentation: Contractors should ensure there is a thorough record of all tasks completed, especially those that extend beyond the scope of the original contract. This should include logging time expended, materials utilised and any additional expenses accrued.
- Obtain written agreement: The standard form home building contracts specify that any modifications must be documented in writing and mutually signed. If the owner declines to sign, document their refusal and your efforts to obtain their consent.
- Ensure transparent communication: The contractor should provide clear information to the owner about any variations as they occur. This includes explaining the necessity of the variation, its impact on the project and any supplementary cost involved.
- Equitable pricing: The invoiced amount should accurately reflect the fair value of undertaken work. This can be substantiated through prevailing market rates, estimates from other builders, or the costs of materials and labour.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.