21 April 2016
Providing clients with estimates is an established practice in the industry. This is for good reason. It can be difficult to price works accurately from the outset, but clients are unlikely to instruct works without some idea of the price. Therefore, contractors have long been providing estimates on the assumption they are not bound to provide the works for this price and they have the flexibility to increase (or decrease) the price once they have a better idea of the works involved. However, we would advise contractors to be cautious of this practice as without appropriate protection, they could find themselves entering into a contract which binds them to the price in their estimate.
In order to create a binding legal contract the law simply requires both parties to have an intention to create legal relations. Thereafter, that intention must be communicated. The law helpfully recognises that parties cannot be expected to read each other’s minds.
Does issuing an estimate amount to an intention to enter into a contract?
The law considers the actions of the parties i.e. what they said and did. If a court is faced with a contractor offering to carry out certain works for customers for a specific price, the court would likely conclude that the contractor intended to enter into a contract for those works at that price. This is especially the case where there is no evidence to suggest anything different.
Turning now to the ‘communication’ element that must be present for a contract to be formed. This is where the legal concept of offer and acceptance becomes relevant. The offer being the offer of one party to enter into a contract on certain terms, with the other party accepting those terms, these two steps will create your contract.
Is it sufficient for an estimate to constitute an offer to enter into a contract with the customer?
In law, it is enough for there to be a description of the services offered and a price. Although sometimes a price is not even considered essential and it is enough for parties to agree this later. If the customer then comes back with a clear and unconditional acceptance, then this can be sufficient to create a binding legal contract between the parties.
Can you be bound by the price in your estimate?
Generally speaking if a contract for services is not clear on price then the court will imply what would be considered a reasonable sum. However, an estimate could be very clear on price, it is there in black and white. You are in a binding contract and unless there is any other documentary evidence, the customer could make a very good attempt at enforcing that contract for the price you provided in an estimate.
Of course, there is no clear cut answer without going to court and the facts and circumstances of all cases will be different. In order to put those facts and circumstances in a contractors’ favour, we would advise getting your paperwork in order. The wording included in the documentation can be such that it is made clear that parties do not intend to be bound by the terms of the estimate. The following wording may assist in this regard:
- Include wording which identifies the document as ‘subject to contract’, with ‘terms to be agreed’.
- Mark the documentation as creating no intention on the part of your company to be legally bound.
- Any price given put in brackets ‘(subject to change)’.
- Make clear that your estimate is not a binding offer.
- Avoid wording which suggests the estimate is open for acceptance within a time period.
If your intention is made clear on your paperwork and this has been issued to a customer, then the court has less scope to look beyond this.
Contact: Jilly Petrie Partner firstname.lastname@example.org T: 0141 221 8012