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Synopsis: "The amount earned".  Quantum meruit is a fundamental point of law, which helps maintain a balance of fairness and avoid "unjust enrichment".

 

1. Introduction: Construction Contracts and Quantum Meruit

 

Even the best written contracts cannot account for every possible eventuality. Construction projects are by their very nature unique, "one of a kind", with a near-infinite number of different variables and constraints affecting the project.

 

As a result, the principle of "quantum meruit", that is "unjust enrichment" by one party over the other is frequently invoked. The doctrine of quantum meruit embodies the concept that a person who benefits by the labor and materials of another should not be unjustly enriched and that under those circumstances the law implies a promise to pay a reasonable amount for the labor, equipment and materials furnished even without a specific contract.

 

 

2. Quantum Meruit - an example

 

Suppose that Client "X" wants to build a warehouse according to the detailed engineering they have already developed. It then signs a "lump sum/ fixed price" Contract with Contractor "Y" to build the warehouse in question. However during construction it is found that the soil load bearing capacity is lower than anticipated (the Client's geotechnical survey had not very comprehensive and failed to sample enough points missing some areas of looser ground). The Client then quickly issues a new set of revised detailed engineering drawings to the Contractor with revised bigger foundations for the warehouse.

 

The Contractor proceeds to build the warehouse as per the new design documents and when the job is completed he requests the Client to pay for the additional cost involved due to the revised bigger foundations.

 

The Client initially tries to rejects the Contractor's extra claim, but the Contractor has a very knowledgeable and competent Construction Lawyer, very familiar with such situations, and quickly disarms the Client and the case is settled in a fair manner whereas the Contractor is paid for the extra costs incurred on the basis of "quantum meruit" and "unjust enrichment" is avoided.

 

 

3. Lump Sum/ Fixed Cost Contract

 

The Client initially claims that the Contract was Lump Sum and that therefore the Contractor has no recourse to additional claims. This may be true, but the change was not due to a fault by the Contractor but due to the Client's own geotechnical survey, as a result of which the foundations had be made bigger at extra cost to the Contractor.

 

The Contractor therefore incurred an extra cost, and the Client benefited from bigger foundations for the warehouse. If the Client did not compensate the Contractor "the amount earned", the Client would then be "enriching unfairly". Therefore under the principle of quantum meruit the Client must compensate the Client.

 

 

4. Extra Work Notice - Failure to Issue Promptly

 

Another tactic the Client attempts is the Contractual clause whereas the Contractor is obliged to notify the Client within 10 working days in the case of any Change Order (resulting in extra cost or extra time) via the "Extra Work Notice". The Contractor failed to comply with this Contractual clause and instead submitted the claim for the extra work upon project completion.

 

While technically the Client would be correct to dismiss the Contractor's claim on this basis (and some contracts/ legal persons of a purely technical bent might be seduced with this line of reasoning) in practice the Contractor's failure to notify the Client within the Contractually specified period is no basis for the Client to become the beneficiary of the extra work without duly compensating the Contractor… irrespective of the wording detailed in the Contract! (If Contracts were perfect, and construction projects were simple affairs, there'd be absolutely no need for contract and construction law specialists to help fill in the gaps and grey areas… one would simply follow the Contract! The reason that these contract and construction law specialists are needed is precisely that there is a real need for knowledgeable guidance and interpretation (what is the intent and essence) outside of the written Contract.

 

 

5. Fair Compensation

 

A well written Contract will detail a number of alternative pricing methodologies for additional work performed. Even if these were not explicitly detailed, compensation by the Client to the Contractor for the extra work performed (the increased size of the foundations) would still proceed on the basis of fair compensation to include the Contractor's overhead costs and profit (the profit percentage that the Contractor can charge might or might not be stipulated in the Contract, but if not, then the industry norm would be applicable).

 

The specific pricing methodology to be used can be decided by the Client and can be based on the following (though not necessarily exclusive): an estimated price agreed by both parties (the Client and the Contractor), the comparison and analysis of external price quotes, published cost data, previously agreed unit rates stipulated in the Contract, or the detail actual cost to the contractor plus markups.

 

 

5. Conclusion

 

Goods and services received must be compensated for in a fair and reasonable manner - irrespective of whether there's a Contract in place. Generally one should approach construction law from the viewpoint of "fairness", the "intent" and "scope" of the agreements (whether written or verbal). While of course it's always desirable and best to have every condition and possible event clearly detailed and agreed upon beforehand, the reality is that this is not possible even in the best of written contracts. Hence the existence of professionals (e.g. legal advisor, arbitrators, construction lawyers, etc.) whose job is to interpret the situation beyond the simple written contract.

 

 

Construction Contract Law - Quantum Meruit

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