What is an “Estimate”?

Within the construction industry context, an “estimate” is defined as “a statement of the approximate charge for work to be done, submitted by a person or business firm ready to undertake the work” by www.dictionary.com.  By definition, an estimate is approximate, so the question begs:  does a contractor have some leeway to charge more than what the original estimate stipulated?

The recent British Columbia Supreme Court case of Kamloops Sheet Metal Works Ltd. v. Coronado Properties Ltd., 2007 BCSC 925, sheds light on how an estimate may give latitude to charge more for work done on a construction project.

FACTS

A restaurant contracted with a metal sheet company to do some renovation on a kitchen exhaust system.  Initially, the metal sheet company was asked for an estimate for the cost of duct work, but the sheet metal company declined to give this estimate because it had not looked at any engineered drawings yet.  However, the sheet metal company was eventually hired as the general contractor, and eventually provided an estimate of $25,000 for the project, which was recorded on the building permit application after a brief examination of the engineered drawings.  Additional work outside of that contemplated in the engineering plans was later requested and done.  

An invoice was issued when 90-95% of the work was complete.  At this point, the contractor estimated an additional $5,000 to complete the project.  The contractor had spent an excess of $15,000 over and beyond the estimate, which was paid out to other individuals or sub-trades, or for equipment, and an additional approximately $7,500 to $8,000 was paid for materials.  The contractor insisted on being paid on a cost-plus basis, whereas the restaurant insisted on paying based on the original estimate of $25,000.  The work was never completed because the parties never came to agreement on terms on which the contractor was willing to complete the project.

FINDING

At trial, the restaurant relied on the case of Mt. Cheam Developments Ltd. v. Clark (1988), 32 C.L.R. 273 (B.C.S.C.) [Mt. Cheam], to argue that a 15% leeway was considered to be reasonable where estimates were given.  In contrast, the contractor argued that it should be paid on a quantum meruit basis (amount that it deserves based on expenses and work completed).

The Court ultimately decided to reject the Mt. Cheam argument that there be a 15% leeway because that case’s facts were not analogous to the case at bar.  In Mt. Cheam, there were no extras and the scope of the work was straightforward and clear.  As such, the Court in that case decided it was unreasonable to deviate from the original estimate when the estimate was based on thorough examination of engineering materials and plans.  These facts were seen as different than the case at bar, because the Court found that the estimate given was only for the duct work, and did not account for all of the work that would have been required by the engineer’s plans. Furthermore, the Court found that the engineer’s plans were not in the hands of the contractor when the estimate was made for the purposes of attaining the building permit.

Thus, the Court decided that the better and more reasonable view was to fix the price of the contract on a quantum meruit basis, to an amount that was slightly under what the contractor was asking for.

LESSONS LEARNED

Before making an estimate to a client, examine engineered plans carefully to assess the exact parameters of work involved for a proposed project and determine the most accurate estimate as possible, because it is highly likely that in these circumstances, the Court will only allow a 15% leeway for the final price of the project.  If estimates really are rough, and not based on engineered plans, then Courts are more likely to grant contractors a price that is higher than the estimate to account for the contractor’s actual expenses.

However, the best practice to avoid litigation is to have a well-drafted contract with a price quote and a caveat that the contract price may deviate from the estimate.  Appropriate allowances should be stipulated explicitly in the written contract to account for any cost overruns related to the project.  A clause should also be inserted to account for any unforeseen extras.

This article was written by Robert G. Kuhn and Meghan A. Maddigan, lawyers who practice in construction law at the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.