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 worth?
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 specialists.
This is only general information and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.