What do clients and contractors need to know about handling additional work?

When a discussion about additional work arises, it is relevant to identify which work is extra – that is, what goes beyond what was agreed. This is done by examining what appears in the tender documents and what appears in the contractor’s bid. What the contractor knew when the bid was submitted also matters. Is it something unexpected, or is it something the contractor ought to have taken into account in its bid?

If it was clear to the contractor before submitting the bid that the tender documents were unclear about which assumptions could be made for specific items in the bill of quantities, the client can argue that the contractor ought to have pointed this out before submitting the bid and could then have made a specific reservation, as the contractor will otherwise be bound by the price it offered.

Even when there is agreement that a piece of additional work has been carried out, there is often disagreement about how it should be settled.

If additional work is covered by an agreed unit price, it is settled in accordance with the unit price, cf. AB 18 § 24(1). The unit prices apply within a variation limit of +/- 100% of the individual item in the bill of quantities. In total, additional work can be adjusted on the basis of unit prices by up to 20% of the contract sum, and reduced work by up to 10% of the contract sum.

A clause in the contract stating that the unit prices apply without any variation limit is unlikely to hold up in court. The starting point, however, remains that work priced at unit rates must be settled at the unit price even if the variation limit has been exceeded, cf. AB 18 § 24(2). The unit price therefore continues to apply unless the client or the contractor can show that the assumptions underlying the unit price have changed.

The client may have an interest in showing that the unit price is no longer binding if the agreed unit price is too high compared with the market price, e.g. because such large quantities now have to be purchased that a volume discount can be obtained, or because the market has changed. Conversely, the contractor may have an interest in showing that the unit prices should not be binding beyond the variation limit if it has offered a low unit price that does not reflect its actual costs. Setting the unit price aside requires the contractor to substantiate that there is a discrepancy between the agreed unit price and the actual costs, and that it would therefore be unreasonable for the contractor to be bound by the unit price offered also outside the variation limits.

Unit prices apply only to the work for which they were agreed. As a starting point, they cannot therefore be extended to other work.

If no unit prices have been agreed and nothing else has been agreed about settling a piece of additional work, the work is carried out on a cost-reimbursable basis, cf. AB 18 § 24(3). The work must then be settled on the basis of the contractor’s actual costs plus a contractor’s mark-up, which typically covers the contractor’s management costs, administrative costs and profit. The contractor’s statement must be supplemented by a specification of working hours, materials and equipment, cf. AB 18 § 24(4).

An interesting question in this context is whether contractor discounts on materials should benefit the client in cost-reimbursable work – and if so, in which cases.

A classic in construction law is the principle in section 5 of the Danish Sale of Goods Act, under which the client must pay what the contractor demands unless it is unreasonable. It can be questioned, however, how far this principle actually extends – or should extend – in construction law. Without going too deeply into this theoretical discussion, we would argue that the client will be able to rebut, relatively easily, the presumption that the contractor’s statement should be accepted without further ado – if the contractor has failed to present the statement in a way that enables the client to assess it.

First and foremost, the contractor should have sent a specification so that the client can assess whether the claim is reasonable. If the client disagrees with the price stated, the client should carefully review the contractor’s specification for errors and compare the prices stated with V&S/Molio prices. Here, however, it is important to take account of the complexity of the project, custom-made components, etc.

The contractor would do well to bear in mind that, typically, the more transparent and clear the specifications are, the more trust the client will immediately have in the statements. That way, the parties can hopefully avoid spending unnecessary time discussing claims for additional work.