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Is a Contractor Bound By An Estimate?

An estimate may give rise to a fixed price contract, which is binding upon a contractor subject to variations in the contract price. But the case of 413784 Ontario Inc. v. Adams[1] illustrates that an estimate may also have a limiting effect on the amount charged by a contractor where the contract price is either time and material or cost plus.

 

In 413784 Ontario Inc. v. Adams a contractor gave the owner of a vacant lot an estimate of $57,000 to build a custom house. Relying on the estimate, the owner entered into a contract with the contractor to build a custom home for cost plus 10% for overhead and 5% profit. Things did not go as planned. The contractor billed the owner $89,000 before the house was completed. The owner realized that he could not afford to complete the home. He sold the home and took a loss of $68,000. The contractor brought a claim against the owner for a further $11,500. The court found that the actual price for the construction of a custom home should not exceed an estimate by more than 10 or 20 per cent. The Court wrote:

 

17. I consider that the difference between the estimated cost and the actual cost to finish the house is far too much and the Defendants are entitled to expect that the house would have been built for something within reasonable range of the estimated cost and certainly no more than 10% or 20%.

 

The Court concluded that the estimate given by the contractor to the owner was negligent because the actual cost of construction exceeded the estimate by 100%. The Court dismissed the contractor’s claim against the owner.

 

The outcome in 413784 Ontario Inc. v. Adams may have been different if the owner had asked the contractor to perform expensive extras, if the contractor was confronted with unforeseen site conditions, if the owner was more sophisticated, if the estimate was qualified, or if the type of work involved was more difficult to estimate accurately. Nevertheless, 413784 Ontario Inc. v. Adams illustrates that a contractor needs to exercise care if it gives an estimate even if it does not intend to commit to a fixed price.

 

Ted Dreyer is a construction and insurance lawyer at Madorin, Snyder LLP. Madorin, Snyder LLP is a full service law firm serving Kitchener, Waterloo, Cambridge, Guelph and the surrounding area. Please visit our construction law page.

 

 

[1] 413784 Ontario Inc. v. Adams, 1983 CarswellOnt 2939

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