Sometimes, a construction contract may not tell you how much
your principal or head contractor has to pay you for construction
work. Other times, it may fail to allow any payment for that work
at all. In those cases, a contractor may claim the fair value of
their work. This is known as a quantum meruit claim.
These claims cannot be made when the contract
says what the contractor has to do, and by when, in order to
qualify for payment, and the contractor does not do those things,
either on time or at all. This is discussed further in our article
on time bars.
Those cases aside, how much is a contractor's work
There aren't many cases that deal with this question. The
few cases that do basically say:
Where there is a written contract with unenforceable payment
terms, those terms are relevant, but not the only relevant evidence
in working out quantum meruit;
Quantum meruit can exceed the price set for the work
by the unenforceable contract; and
Quantum meruit should include a component for labour
and supervision costs.
Based on these principles, the Victorian Court of Appeal has
recently said that quantum meruit equals the base cost of
labour and material supplies plus 10%: Sopov & Anor v Kane
Constructions Pty Ltd  VSCA 257. But Sopov was an
exceptional case because there, the unenforceable contract was a
losing contract. It was a losing contract because, if the
contractor in that case (Kane Constructions) had practically
completed its scope of work and become entitled to payment under
the contract, it would have spent more on doing the work than it
would have been paid for it. In other words, the contractor would
have lost money if paid under the contract.
So in Sopov, it made sense to assess the fair value of
the work based on how much it would have cost the owner to cut out
the middle man and get the job done itself: i.e. the cost of
labour, materials, supervision, overheads and nothing else. Really,
these are the only costs that the owner saved because of the work
that Kane Constructions did under the losing contract.
If the failed contract had been profitable, though, the
contractor could have argued that its work had saved the owner
having to pay someone else the cost of labour and materials plus
the contractor's margin (as opposed to just a break-even
mark-up for overheads and supervision) which might have been closer
to 25% or 30% as opposed to just 10%.
If you are a construction contractor or owner involved in any
kind of payment dispute, talk to HHG's construction law
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.
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