November 29, 2005
Part 3 - Providing estimates to residential clients
Part 3 - Providing estimates to residential clients: The impact of the new Consumer’s Protection Act
By Robert Kennaley
McLauchlin & Associates In the September issue of Horticulture Review I offered an overview and summary of the new Consumer’s Protection Act, 2002, which came into force on July 30, 2005. To recall, the Act applies where goods or services are provided to a consumer, or individual acting for personal, family or household purposes. Agreements to provide goods or services to industrial, commercial or institutional clients are exempt from the Act. I previously discussed the Act’s application to estimates. These provisions are significant and will no doubt lead to confusion and disputes between Landscape Ontario members and their clients, be they in construction, maintenance or design. Accordingly, these provisions merit some further review and discussion. The Act provides that where a consumer agreement includes an estimate, the supplier’s price cannot ultimately exceed that estimate by more than 10 per cent. The provisions beg some questions. Does this mean that a residential client can refuse to pay more than 10 per cent above the original quote or contract price, regardless of the circumstances? What about unanticipated site conditions or changes in the work? How will the provisions apply to cost-plus, unit-rate or time-and-material contracts? What about design contracts which are tied to the hard costs of construction? How do contractors and suppliers avoid the pitfalls of these provisions? We will try to address these questions in the space below, beginning with the question, ‘What is an estimate’? Defining estimates
Curiously, the word ‘estimate’ is not defined by the Act. It is suggested, however, that a contractor or supplier provides an estimate where he or she says “I believe I can do the work for approximately this price.” Prior to the new Act, those who supplied goods or services to consumers were in no way bound by such estimates. The mechanic could give a $200 estimate to a consumer, repair the consumer’s car and then charge $1,500. Under the new legislation, the 10 per cent rule will now apply to this circumstance. It will be no defence for the mechanic to say “I ran into unforeseen circumstances.” Very few mechanics, however, actually give estimates. Rather, they quote fixed prices. They essentially say: “I will charge you a fixed price to diagnose the problem. I will then tell you what repairs are required and give you a fixed price for that work. If you agree, we will then do that work for that price.” The client always knows what he is paying. There is no estimate; there are only fixed prices. This approach is recognized by the Act, which makes it clear that consumer agreements must be subject to change “if the consumer requires additional or different goods or services.” This tells us that, as long as the consumer agrees, additional charges can be levied for additional services, unforeseen circumstances or other changes in the work. Simply put, to avoid the pitfalls associated with estimates, LO members should avoid giving estimates whenever possible. This involves entering into fixed-price contracts, which should: • describe the scope of work in as much detail as possible; • anticipate unforeseen conditions, as applicable; • provide that work necessitated by unforeseen conditions is not included in the contract, and • should detail when and how extra work will have to be approved and paid for by the client. In addition, any extra work should be expressly approved by the client. In this way the client knows exactly what he is, and is not, paying for. There is no estimate, or guess, as to what the actual cost of the goods or service might be. Such advice, of course, should be nothing new. Contractors, designers and suppliers should always strive to attain such certainty in their contract documents, regardless of who the client is. In that regard, we are reminded that more disputes arguably arise in the construction context over what is, and is not, an extra, than arise over any other issue. From this perspective, if the new legislation helps contractors, designers and suppliers to better focus on the need for clear and unambiguous contract arrangements, so much the better. Types of contracts
Yet contractors, designers and suppliers might, at times, be asked to provide estimates. In other circumstances, the question of whether or not a price constitutes an estimate will not be clear. In these circumstances, those who supply services or materials to consumers will have to heed the estimate provisions of the new legislation.
Remember, however, that even under time-and-materials, unit-rate and cost-plus contracts, you should take care to detail what is, and is not, included in the contract. Where an estimate must be provided, the contract should clearly describe what is, and is not, included in the estimate. It should also provide that where unanticipated conditions necessitate that work not included in the estimate be performed, this work must be paid for as an extra. Remember, also, that where you agree to perform an extra, the same approach should be taken to the price for the extra. If you perform the work without agreeing to a price, you are asking for trouble. If your price is provided in the form of an estimate, the above referenced considerations apply. If possible, it is best to agree to a fixed price for the extra, in advance, and in writing. Note for designers
I also wish to comment on the role that estimates might play in a design consultant’s contract. This is because the design consultant’s fee is often calculated as a percentage of the costs of construction. Further, the contract documents will often reference an estimated construction budget, which the designer takes into consideration in preparing his design. Designers who utilize such an approach to their work with residential clients should make it clear in their contracts that, notwithstanding the estimated construction budget, no estimate of their fee is being provided and their fee will be calculated as a percentage of actual construction costs. In addition, design consultants should be careful if they provide an estimate, or budget, for the hard costs of construction as part of the design process. This is because they may inadvertently agree to a “cost condition,” whereby they represent that the design can be built for the estimated amount. If it is found that such a representation was made, and was wrong, the consultant might not be entitled to payment for his design. This is because the design may be of no value to the client, who cannot afford to build it. A cost condition need not be expressed in writing. It may also arise by implication. Factors to be considered in this regard include whether or not the consultant was aware of the client’s budgetary limitations or expectations, the sophistication of the client, the extent to which the client is active in controlling costs and the extent to which the initial drawings are preliminary or subject to change. Consultants should accordingly consider making it clear in their agreements that such estimates or budgets are not to be relied on by the client. Consultants should also inform clients promptly if conditions change such that a cost estimate is no longer applicable. In conclusion, I again encourage LO members who work in the residential sector to review their contracts and practices to ensure compliance with the new legislation. Members are encouraged to obtain and read the Consumer Protection Act, 2002, and the regulation passed thereunder, Ont. Reg. 17/05. These can be downloaded from the Ontario Government at www.e-laws.gov.on.ca In addition, I will be speaking to these issues at the upcoming LO Congress on January 11, 2006.
McLauchlin & Associates In the September issue of Horticulture Review I offered an overview and summary of the new Consumer’s Protection Act, 2002, which came into force on July 30, 2005. To recall, the Act applies where goods or services are provided to a consumer, or individual acting for personal, family or household purposes. Agreements to provide goods or services to industrial, commercial or institutional clients are exempt from the Act. I previously discussed the Act’s application to estimates. These provisions are significant and will no doubt lead to confusion and disputes between Landscape Ontario members and their clients, be they in construction, maintenance or design. Accordingly, these provisions merit some further review and discussion. The Act provides that where a consumer agreement includes an estimate, the supplier’s price cannot ultimately exceed that estimate by more than 10 per cent. The provisions beg some questions. Does this mean that a residential client can refuse to pay more than 10 per cent above the original quote or contract price, regardless of the circumstances? What about unanticipated site conditions or changes in the work? How will the provisions apply to cost-plus, unit-rate or time-and-material contracts? What about design contracts which are tied to the hard costs of construction? How do contractors and suppliers avoid the pitfalls of these provisions? We will try to address these questions in the space below, beginning with the question, ‘What is an estimate’? Defining estimates
Curiously, the word ‘estimate’ is not defined by the Act. It is suggested, however, that a contractor or supplier provides an estimate where he or she says “I believe I can do the work for approximately this price.” Prior to the new Act, those who supplied goods or services to consumers were in no way bound by such estimates. The mechanic could give a $200 estimate to a consumer, repair the consumer’s car and then charge $1,500. Under the new legislation, the 10 per cent rule will now apply to this circumstance. It will be no defence for the mechanic to say “I ran into unforeseen circumstances.” Very few mechanics, however, actually give estimates. Rather, they quote fixed prices. They essentially say: “I will charge you a fixed price to diagnose the problem. I will then tell you what repairs are required and give you a fixed price for that work. If you agree, we will then do that work for that price.” The client always knows what he is paying. There is no estimate; there are only fixed prices. This approach is recognized by the Act, which makes it clear that consumer agreements must be subject to change “if the consumer requires additional or different goods or services.” This tells us that, as long as the consumer agrees, additional charges can be levied for additional services, unforeseen circumstances or other changes in the work. Simply put, to avoid the pitfalls associated with estimates, LO members should avoid giving estimates whenever possible. This involves entering into fixed-price contracts, which should: • describe the scope of work in as much detail as possible; • anticipate unforeseen conditions, as applicable; • provide that work necessitated by unforeseen conditions is not included in the contract, and • should detail when and how extra work will have to be approved and paid for by the client. In addition, any extra work should be expressly approved by the client. In this way the client knows exactly what he is, and is not, paying for. There is no estimate, or guess, as to what the actual cost of the goods or service might be. Such advice, of course, should be nothing new. Contractors, designers and suppliers should always strive to attain such certainty in their contract documents, regardless of who the client is. In that regard, we are reminded that more disputes arguably arise in the construction context over what is, and is not, an extra, than arise over any other issue. From this perspective, if the new legislation helps contractors, designers and suppliers to better focus on the need for clear and unambiguous contract arrangements, so much the better. Types of contracts
Yet contractors, designers and suppliers might, at times, be asked to provide estimates. In other circumstances, the question of whether or not a price constitutes an estimate will not be clear. In these circumstances, those who supply services or materials to consumers will have to heed the estimate provisions of the new legislation.
First, there are the ‘time-and-materials’, ‘unit-rate’ and ‘cost-plus’ contracts. In each case, while a formulate for determining the final contract price is agreed upon, the actual final contract price is not known when the contract is signed. So long as no estimate of the final price is offered, the estimate provisions of the Act should have no application. Where, however, a consumer asks you for an estimate of the final cost, it would appear that you will have two options. Either refuse to provide the estimate on the grounds that you may be limited to no more than a 10 per cent over-run, or provide an estimate that you can live with, on the understanding that you might recover no more than that estimate, plus 10 per cent.
What is an extra?Remember, however, that even under time-and-materials, unit-rate and cost-plus contracts, you should take care to detail what is, and is not, included in the contract. Where an estimate must be provided, the contract should clearly describe what is, and is not, included in the estimate. It should also provide that where unanticipated conditions necessitate that work not included in the estimate be performed, this work must be paid for as an extra. Remember, also, that where you agree to perform an extra, the same approach should be taken to the price for the extra. If you perform the work without agreeing to a price, you are asking for trouble. If your price is provided in the form of an estimate, the above referenced considerations apply. If possible, it is best to agree to a fixed price for the extra, in advance, and in writing. Note for designers
I also wish to comment on the role that estimates might play in a design consultant’s contract. This is because the design consultant’s fee is often calculated as a percentage of the costs of construction. Further, the contract documents will often reference an estimated construction budget, which the designer takes into consideration in preparing his design. Designers who utilize such an approach to their work with residential clients should make it clear in their contracts that, notwithstanding the estimated construction budget, no estimate of their fee is being provided and their fee will be calculated as a percentage of actual construction costs. In addition, design consultants should be careful if they provide an estimate, or budget, for the hard costs of construction as part of the design process. This is because they may inadvertently agree to a “cost condition,” whereby they represent that the design can be built for the estimated amount. If it is found that such a representation was made, and was wrong, the consultant might not be entitled to payment for his design. This is because the design may be of no value to the client, who cannot afford to build it. A cost condition need not be expressed in writing. It may also arise by implication. Factors to be considered in this regard include whether or not the consultant was aware of the client’s budgetary limitations or expectations, the sophistication of the client, the extent to which the client is active in controlling costs and the extent to which the initial drawings are preliminary or subject to change. Consultants should accordingly consider making it clear in their agreements that such estimates or budgets are not to be relied on by the client. Consultants should also inform clients promptly if conditions change such that a cost estimate is no longer applicable. In conclusion, I again encourage LO members who work in the residential sector to review their contracts and practices to ensure compliance with the new legislation. Members are encouraged to obtain and read the Consumer Protection Act, 2002, and the regulation passed thereunder, Ont. Reg. 17/05. These can be downloaded from the Ontario Government at www.e-laws.gov.on.ca In addition, I will be speaking to these issues at the upcoming LO Congress on January 11, 2006.