Cost overrun in construction projects is one of the most acute problems, especially in recent years amidst inflation and rising material prices. A dispute begins when actual costs exceed the initial budget. The contractor requests additional payment, while the client refuses, citing the price fixed in the contract. Resolving cost overrun disputes depends on the contract type: whether it is "Fixed Price/Lump Sum" or "Cost Plus." The Civil Code of Georgia allows for price revision in case of substantial change in circumstances (Article 398) or additional works (Variation Order), but proving this is a complex legal process.
Lawyer assistance is necessary to determine who should bear responsibility for increased costs. If the overrun is due to the contractor's miscalculations or errors, they are liable. If the cause is a change in the project by the client or force majeure inflation, the price may be revised. Legal.ge offers experts who will help you manage budget disputes and achieve fair compensation.
What Does Cost Overrun Disputes Service Cover?
This service covers financial disputes in construction:
- Contract Type Analysis: Determining whether the contract is fixed or variable price and what it stipulates regarding price escalation.
- Variation Management: Documenting changes requested by the client and agreeing on their cost.
- Price Revision Claims: Preparing legal justification for price increases due to rising material costs or inflation (based on the Civil Code).
- Expertise: Conducting audits and construction expertise to determine how real and necessary the additional costs were.
- Negotiation & Dispute Resolution: Negotiating with the client for a budget increase or resolving the dispute in court/arbitration.
Common Real-World Scenarios
Budget overruns often occur for the following reasons:
The first scenario is "Rising Material Costs." The contract was signed in 2021, but by 2023, rebar prices increased by 40%. The contractor is at a loss. They request price indexation. If the contract lacks a "price escalation" clause, the dispute becomes difficult.
The second case is "Additional Works." During construction, it was found that the soil is weak and needs extra reinforcement, which was not in the estimate. The contractor performed the work without agreement and demands payment. The client refuses.
The third scenario is "Design Defect." There was an error in the architectural design, fixing which caused material overruns. The contractor demands reimbursement of this cost because the error was in the client's design.
The fourth situation is "Extension of Time." The construction lasted longer than planned due to the client's fault, increasing administrative costs (salaries, security). The contractor claims compensation for these costs.
Georgian Legal Framework and Regulations
Price changes are regulated by:
- Civil Code (Article 644): States that if the estimate was approximate and costs increase significantly, the contractor must notify the client.
- Article 398 (Change of Circumstances): Allows for contract adaptation if circumstances (e.g., market prices) have changed radically.
Process and Stages
The lawyer checks the estimate and actual expenses. It is essential to determine if additional works were agreed upon in writing. If not, the case becomes complicated. The lawyer prepares a claim for reimbursement based on unjust enrichment or contract adaptation norms. The process often requires financial expertise.
Why Legal.ge?
Money disputes are always intense. On Legal.ge, you will find lawyers who will help you prove that the cost increase was an objective necessity and not the contractor's whim, or conversely — protect yourself from inflated costs.
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