As a builder, you usually get paid for completed work according to the construction contract or heads of agreement. However, there are limited situations where you would receive payment based on the value of your work. That payment process is known as a quantum meruit claim (QMC). This article will explain when and how you can make a QMC.
What is the Purpose of a QMC?
A QMC provides an alternative path to payment when you have completed work under the construction contract or heads of agreement. In those situations, the law recognises that the homeowner or the principal (such as a developer) still received a benefit from your labour. Therefore, the law allows you to receive compensation that is independent of any payment terms found in the construction contract or heads of agreement.
When Can You Make a Quantum Meruit Claim?
There are four key situations in a construction project when you may be able to make a QMC.
1. The Contract Does Not Include a Price
The contract will outline the scope of work but there is no fixed price or method for calculating costs. When you complete work, you should be paid a reasonable amount for completed work.
2. You Perform Work That Is Outside the Contract
The homeowner or principal may direct you to complete work outside of the scope of the contract. However, the work is not counted as a variation under the construction contract which means you cannot claim payment under the contract.
3. You Complete the Work but the Original Contract No Longer Exists
The builder is unable to claim payment if the contract is:
- frustrated; or
Void: A contract is void because the terms were too uncertain, the contract was incomplete, there was a common mistake or it was an illegal contract. For example, you enter into a contract to build a 10-storey apartment in a suburb. However, planning laws ban the construction of apartments that are more than five storeys high.
Voidable: A contract is voidable if one party ends the contract because of mistakes, misrepresentation of facts, duress or undue influence. The contract is still valid and enforceable. For example, the principal ends the contract because of misrepresentation of facts but you have already completed some work by the time the principal ends the contract.
Frustration: Both parties cannot perform their obligations under the contract due to unexpected circumstances. For example, you may have been building a shopping mall when a large flood hit the construction site. No one has ended the contract, but you still want payment for any work completed so far.
Termination: The principal may end the contract for breach of an essential term in a contract, such as poor quality work when you guaranteed that the building would be of good quality. You may have completed some work but did not receive payment when the contract ended.
4. You Complete Work Under a Heads of Agreement But You Cannot Claim Payment
You may have signed a heads of agreement which sets out key terms to negotiate before you sign a final contract. The heads of agreement may not be legally binding or is subject to the final contract.
During the negotiation period, the builder may excavate the construction site. However, the contract is never finalised. The heads of agreement does not include a scope of work and a method of calculating the cost. Therefore, the builder can receive payment at a reasonable price for completed work.
How Do You Prove Your QMC?
Firstly, you will need to show that one of the four situations where a QMC may arise exists in your current situation. Secondly, you will have to argue before a court as to how much compensation you should receive based on completed work. Essentially, you need to show that you have charged a reasonable price for the work.
The court will award you a ‘reasonable sum’ that will do justice for both you and the principal based on factors such as:
- whether the contract or heads of agreement (if such a document exists) provides any guidance or formula for calculating the cost of the work;
- the quality and standard of the work;
- the commercial value of the work; and
- whether either party (especially the builder) has engaged in bad faith.
The principal is unable to perform their obligations and ends the contract with you. This process is known as repudiating the contract. However, you have completed some of the work under the contract. In this situation, you can claim compensation for breach of contract or QMC that represents the fair value of the work you have done.
As the principal has repudiated the contract, they cannot rely on the contract to limit how much compensation you can claim. However, you can use the contract as evidence for the value of completed work. You will need to prove you have incurred costs for construction work that is reasonable and fair at the time of performing the work. A court may award you more compensation compared with the original contract price because they find the money appropriately represents the “reasonable sum” for completed work.
A QMC is an alternative pathway for builders to receive payment for completed work when they are unable to do so under a contract or heads of agreement. However, you need to prove that you are in a situation where you cannot ordinarily claim payment despite performing the work. Furthermore, you must prove that you have charged a reasonable price for the completed work. You may receive compensation based on whether the money represents a “reasonable sum” for the completed work. If you have any questions or need assistance drafting your claim, get in touch with LegalVision’s construction lawyers on 1300 544 755 or fill out the form on this page.
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