Mind the gap – your rights when estimates and invoices don’t match

Commercial | Print Article

[Spring 2013]

Most people know the difference between an estimate and a quote. Quotes are certain and enforceable. But the laws relating to estimates are a little more complex.

In some circumstances it is reasonable to treat an estimate as a vague ‘ballpark’ figure (a true estimate), while in other cases it is reasonable to expect the estimate to be very close to the final figure (a ‘near-quote’). It’s important to know the difference if you are quoting on jobs or if you are to be aware of your rights as a customer.

A 2013 decision of the High Court in Nelson ([2013] NZHC 647) considered a claim by a boatbuilder for final costs of repairs to a boat which was more than twice the estimate. It noted that for near-quotes an acceptable invoice might exceed the estimate by 10-33% (the latter and higher figure in instances of very rough estimates). However, this case dealt with a true estimate because the boatbuilder could not know the amount of repairs required until it had opened up the boat.

Estimates were given and the contract for the work was agreed on a time and materials basis. The boatbuilder promised to provide updates of anticipated costs but, after a time, failed to do so. The launch owner was not happy when the ultimate invoice was roughly twice the price of the estimate.

The judge saw the promise to keep a customer informed of the ongoing costs as an express term of the contract that encouraged the owner to enter it. The failure to keep the owner informed deprived the owner of the ability to react to the escalating expenses. The Court reduced the claim significantly.

The lesson to be learned for those providing estimates for services is that if for any reason you cannot provide an accurate estimate prior to starting you need to keep the customer informed if it becomes apparent that the costs may significantly exceed the estimate. If they don’t, the customer might be entitled to a reduced price for the services. With near-quotes it’s important to keep within the acceptable parameters of your initial estimate.

And for the bill payer, it’s important to realise that an invoice can exceed a near-quote by up to a third. Where the work is not a near-quote it’s important to make clear that you want to be kept informed regularly of the progress otherwise you run the risk of paying a lot more than you might have otherwise thought. The law is not simple here if you feel you have been overcharged, especially when it comes to calculating what you should have to pay. If you face this issue it is best to speak to a lawyer.