Fixed Price Construction Contracts: Who pays for “EXTRAS”?
The courts have often approached this question with the view that a contractor will be required to pay for any costs the contractor knew or ought to have known about when tendering its bid on a construction project. In the event that a contractor is required to perform extra work and incur additional expenses (the “Extras”) that were not expressly included in the fixed price contract, the Extra that should have been anticipated by the contractor will be viewed as being within the scope of the contract. As such, the contractor is deemed to have included the cost of that work in its tender and will be required to pay for it.
Where the Extras are outside the scope of the contract, the contractor will be entitled to be paid for the Extras, so long as the owner of the project owner has given the contractor permission to incur the extra expense. In that sense, an Extra is work which is substantially different from or collateral to the work contemplated by the contract. In order to determine whether a particular item of work is an extra the courts will often look to the terms of the contract, the nature of the work, and the surrounding circumstances.
The burden of proving that work done was in fact an Extra and not included in the contract lies on the contractor, and unless able to discharge this burden, the contractor is not entitled to receive more than the price fixed by the contract. The contractor must show that the changes were of so radical a nature that they, in effect, caused a new contract to be created between the parties.
To avoid incurring additional expenses, it is prudent for a contractor to meticulously review all calls for tenders and to clarify any ambiguities at the outset.
An example of where the Supreme Court of British Columbia has ordered that a contractor pay for extra work was where a room expansion was required to accommodate a large hot tub. The owner of the property had requested that an 8 to 10 person hot tub be installed in one of the rooms in their hotel; however, the size of the room in the building plans would not accommodate such a large hot tub.
The Court held that, in those circumstances, the contractor should have foreseen that the room would have to be expanded to accommodate the hot tub and so the contractor was required to pay for the costs of the expansion.
Where project owners rely on the expertise of a contractor to determine what work will be required in order to complete a project and how much that work will cost, additional costs arising from the contractor’s miscalculation, will be born by the contractor.
Conversely, where the miscalculation is in the area of expertise of the owner or a third party contracted by the owner, e.g. an engineer or architect, the additional costs arising from that mistake will either be treated as an extra to be paid for by the owner, or the court may determine that the engineer or architect is liable for the additional costs because of its mistake.
Only where the additional work is radically different from the type of work required by the contract and was not contemplated by the parties as being within the scope of the contract, the project owner or the experts hired by the project owner to determine the scope of the project (e.g. engineers or architects), will be required to compensate the contractor for the additional work.