Cost Estimate Overruns and Their Consequences
One of the most common grounds of construction disputes is the overrun of the cost estimate. Article 631 regulates this situation clearly: if the contractor significantly exceeds the approximate cost estimate, it may claim only the agreed remuneration, except where the excess could not have been foreseen in advance. This rule places the risk of overspending on the contractor and obliges it to plan precisely.
Where the cost estimate increases in a way that could not have been foreseen at the conclusion of the contract, the contractor must notify the customer immediately. If the customer terminates the contract because of the increase in the estimate, it is obliged to pay for the work performed according to the approximate cost estimate. A timely and documented notice of the overrun is in this situation the foundation of the contractor's position, and its absence may cost the contractor the entire excess.
The Customer's Inaction and Compensation of Loss
The second flashpoint of disputes is the customer's conduct. Under Article 633, the contractor may claim compensation of loss if the customer does not accept the completed work. The customer is obliged to compensate the loss also where it fails to perform an action necessary for the performance of the work — inaction, too, engages responsibility.
The amount of compensation is determined, on the one hand, according to the duration of the delay and the amount of the remuneration and, on the other hand, according to what the contractor would have earned by using its labour otherwise, had the customer not exceeded the term. This formula ties the loss to the contractor's actual detriment, and its calculation always rests on evidence — records of the delay, of the idle capacity and of the alternative uses of the workforce.
Termination by Either Party
Article 636 gives the customer a broad right: to refuse the contract at any time before completion of the work, but it must compensate the contractor for the work performed and for the loss caused by the termination. The unrestricted right of refusal creates flexibility, yet its price — compensation of the performed work and of the resulting loss — must be calculated before the decision is taken.
For the contractor the rule is stricter: under Article 637, the contractor may discontinue the contract before completion only in such a way that the customer is able to obtain the service otherwise, unless a significant ground for the discontinuation exists; in the latter case the duty to compensate loss is excluded. The existence of a significant ground must be established by the contractor and, if necessary, upheld in court.
Acceptance of the Work and Limitation Periods
A dispute often flares up at the stage of acceptance. Article 649 provides that where handover is required under the contract or follows from the nature of the completed work, the customer must accept the completed work and pay the remuneration immediately upon acceptance; if the customer does not take over the work within the period set by the contractor, the work is deemed accepted. This norm reduces the risk of unjustified suspension of payment.
The limitation periods are governed by Article 655: a claim on account of defective performance may be brought by the customer within one year, while a claim concerning a structure may be brought within five years from the day of acceptance of the completed work. In construction disputes the computation and observance of these periods frequently decide the fate of the claim itself.
Frequently Asked Questions
What happens if the contractor significantly exceeds the estimate?
It may claim only the agreed remuneration, unless the excess could not have been foreseen in advance; such an increase must be notified to the customer immediately.
May the customer terminate the contract at any time?
Yes, at any time before completion of the work, but it must compensate the contractor for the work performed and for the loss caused by the termination.
When may the contractor discontinue the contract?
Only in such a way that the customer can obtain the service otherwise, unless a significant ground for discontinuation exists — in that case the duty to compensate loss is excluded.
How is the loss compensable by the customer calculated?
According to the duration of the delay and the amount of the remuneration, and taking into account what the contractor would have earned by employing its labour otherwise.
Within what period must a claim be brought?
A claim for defective performance within one year, and a claim concerning a structure within five years from the day of acceptance of the work.
How We Help on Legal.ge
The lawyers of Legal.ge stand beside clients in every format of construction disputes: assessing estimate overruns, calculating loss, shaping the termination strategy and resolving acceptance and payment conflicts. We will analyse your contract and the factual circumstances, prepare the claim documentation and represent your interests in negotiations and in court. Contact us on Legal.ge — we will help ensure that the dispute is resolved in time and on the strength of evidence.