It’s the old story. Construction work is carried out, or services are performed, without the all important contract being agreed and signed. The contractor or consultant wants paying. All is not lost, however, as the law can come to the rescue of a party that responds to a request to do work without a contract entitlement. The rescue is by quantum meruit, the implication of a promise to pay for the work. The next question, however, is what can a claimant actually expect to receive?
A claim for payment on a quantum meruit basis is generally a claim for a “reasonable sum”, for example, for the work done and the materials supplied by a contractor. Unfortunately, but inevitably, the courts have not laid down any hard and fast rules for the assessment of what is “a reasonable sum”, as this depends on all the circumstances, and evidence of figures discussed between the parties in negotiation, prevailing market rates and reasonable margins might be relevant.
The value of the benefit received by the defendant will usually be the measure for determining what is a “reasonable sum”, although where the defendant’s request is a dominant factor for the work to be carried out, there may be a strong argument for making the quantum meruit claim on a cost plus basis, consisting of actual cost (including on and off-site overheads) provided that “it was reasonable…and was reasonably and not unnecessarily incurred plus an appropriate addition for profit”.
It starts to get more complicated where there is defective work. The value of the benefit may be reduced by any defects that remain in the completed works, on the basis that the work handed over is worth less. The courts have said that where a contractor works inefficiently and/or leaves defective work:
“...then, quite obviously, the actual costs incurred by the contractor must be appropriately adjusted and/or abated to ensure that the owner will not be required to pay more than the goods and services provided are truly (objectively) worth”
“...if the value is being assessed on a ‘costs plus basis’, for example from time sheets and hourly rates for labour, then deductions should be made for time spent in repairing or repeating defective work, and for inefficient working or … excessive tea-breaks and the like.”
And what if the works are late? Might that affect the valuation of the benefit? The law is not clear as to whether the value of work or services performed may be reduced because of late or unsatisfactory performance that may have left the owner open to third party claims. The courts have readily admitted that “...this question of law is a difficult one, the answer is uncertain and may depend the facts of particular cases”. Nor is it clear if contractual cross-claims are relevant to the assessment of reasonable remuneration in a quantum meruit claim.
And once the value of the benefit has been fixed, the paying party has no contract to fall back on if latent defects subsequently emerge. Nor can either party go to adjudication for a quick answer to a dispute. No contract means no adjudication or payment rules.
So while quantum meruit does plug the payment hole left by the absence of a contract, to enable a claimant to recover some, if not all, of its costs, it is generally a distant, and uncertain, second best to having an agreed and signed contract in place.