Recovering Costs for Variations to the Contract

For builders and contractors, variations to the contract are all well and good if there is a written variation in accordance with the contract. However, what happens if the variations are not made in writing?

Generally, builders and contractors are unable to claim for the costs of the variation pursuant to the contract, nevertheless, the law recognises that such a situation will not result in a fair and just outcome. Therefore, a builder or contractor can claim on a quantum meruit basis for the payment of the variation workout side the contractor agreement. Quantum meruit is an action for payment of the reasonable value of services performed. Essentially, the principle is designed to remedy a situation where it would be unjust or unfair for an individual to enjoy a benefit without compensating the builder or contractor for the services performed. Nevertheless, there are strict rules behind the entitlement of quantum meruit.

In Darin v Olzomer [2012] NSWCA 60, the NSW Supreme Court of Appeal considered whether a builder was entitled to payment of variation work on the basis of a quantum meruit claim. The homeowners approved a variation to the plans with the effect that the building would be built as a “split-level” building as opposed to a single storey dwelling. The builder verbally advised the homeowners that the variation would cost at least $50,000. There was no written contract for the variation. The builder sought recovery from the homeowner of the final payment upon completion of the building work.

The Court of Appeal held that the homeowner:

• had actual knowledge of additional work;
• knew that they were outside the contract; and
• knew that the builder was expecting to be paid for the works as extras to the contract. Accordingly, the builder was entitled to recover the costs of the variation outside of the contract on the basis of a quantum meruit

Tips

• If you are a builder or contractor, you should ensure all agreed terms are properly documented and signed by all parties;
• Quantum meruit claims may apply in some situations but not all, and therefore you should consider obtaining legal advice for the recovery of variation costs.

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This article is not legal advice and should not be relied upon as legal advice. All articles found on this website are intended to provide informative information, nevertheless, in many instances legislation and case law has been simplified and/or paraphrased. If you would like personal legal advice based on your current circumstances, you should contact MurdockCheng Legal Practice for a free consultation.