Cost Overrun Disputes: Where the Problem Arises
The most frequent subject of dispute in construction and manufacturing projects is the overrun of the cost estimate: the customer believes the work should fit within the agreed price, while the contractor believes the circumstances required additional expenditure. Georgian civil legislation answers this conflict with clear rules, and knowing them shapes both parties' positions in advance.
The starting rule is this: where the contractor significantly exceeds the approximate cost estimate, it may claim only the agreed remuneration, except where prior contemplation of the excess expenditure was impossible. In other words, by default the risk lies on the contractor: exceeding the approximate value does not increase the remuneration.
The Exception: an Increase That Could Not Be Foreseen
The exception concerns the case where contemplating the increase at the conclusion of the contract was impossible. Of such an increase the contractor must notify the customer without delay. This duty of notification is in practice the most frequently violated: the contractor tries first to finish the work and then to claim the addition — and it is precisely with this delayed notification that it loses its position.
The customer also has its own decision point: where the customer terminates the contract because of the increase of the cost estimate, it is obliged to compensate the work performed according to the approximate cost estimate. In other words, leaving the relationship is not free — the performed part is valued and paid for.
Presumptions of the Agreement on Remuneration
The background of the dispute is formed by how the remuneration was agreed. The rules are these: remuneration is deemed agreed even without words, where according to the circumstances the work is to be expected only against remuneration. Where the amount of remuneration is not agreed, where a tariff exists the tariff rate is deemed agreed, and where no tariffs exist — the ordinary remuneration. The indeterminacy of the remuneration therefore does not resolve the dispute entirely — a set of presumptions replaces it.
Changed Circumstances and Adaptation of the Contract
One legal route for an increase of costs is the adaptation of the contract: where the circumstances that became the basis for the conclusion of the contract have evidently changed after its conclusion, and the parties would not have concluded this contract, or would have concluded it with different content, had they taken these changes into account, the adaptation of the contract to the changed circumstances may be demanded. Equivalent to a change of circumstances is also the case where the notions that became the basis of the contract prove incorrect.
The procedure matters as well: the parties must first attempt to adapt the contract to the changed circumstances. Where adaptation is impossible, or the other party does not consent to it, the party whose interests were violated may renounce the contract. The law thus first orders the parties to negotiate, and only after its failure opens the exit route.
Overrun clauses are often found in a form pre-formulated by one party. Here the regime of standard terms applies: standard terms of a contract are pre-formulated conditions intended for multiple use, which one party — the offeror — imposes on the other. Where the conditions are defined in detail by the parties, this is not considered standard, and conditions directly agreed by the parties take precedence. The character of the overrun clause — standard or individually negotiated — is therefore a separate issue in the dispute.
Additional Performance as a Route of Mitigating Damage
Where the result is defective, one way out of the dispute is additional performance: where the product is defective, the customer may demand additional performance, and the contractor may at its own choice either eliminate the defect or make a new product. For the purpose of additional performance the contractor must bear the necessary costs, including those of transport, work and materials, though it may refuse where this requires disproportionate expenditure. The specialists of Legal.ge will assist you in assessing and conducting a cost-overrun dispute.
Frequently Asked Questions
Who bears the risk of exceeding the estimate?
By default the contractor: exceeding the approximate cost does not increase the remuneration, except for an increase that could not be foreseen.
What must the contractor do on an unforeseeable increase?
Notify the client without delay; a late notice weakens its position.
May the client terminate the contract?
Yes, because of the increase — but work already performed must be paid for according to the approximate estimate.
How We Help on Legal.ge
An overrun dispute is built on documents. It is in the contractor's interest to reflect the nature of every additional work: what caused it, which detail of the contract changed, and why this change was not foreseeable in advance. The customer's interest is the opposite — to control that the increase is not caused by a defect in the contractor's own organization. The court infers precisely from these materials whether the increase was objectively unforeseeable.
The second direction is the fixation of notifications: the fact, time and form of the notice of the increase decide the fate of the dispute. The third is the valuation of the performed part according to the approximate cost estimate: which elements were performed, at what cost, and to what extent the customer has an interest in them. Documentation of these three directions is the foundation of conducting the dispute.