Estimate: cost and liability

Money does not grow on trees – sometimes you need to know in advance how much money you need for a paint job, car repair, or a large building project. A cost estimate can serve as a basis for getting an overview of the expected costs, to calculate your budget, and to compare several providers of the same service with each other.

However, many customers are unsure: Does the cost estimate itself cost anything? Is it even binding? And what actually happens if the agent exceeds the estimated sum? We answer these and other questions.

A cost estimate contains the expected costs required to implement a specific order. On the basis of a rel­a­tive­ly accurate estimate, the client can obtain an idea of the price companies are offering their services for and whether the costs incurred (labor and materials, for example) are realistic or af­ford­able.

Estimates are possible in many sectors, but are used in par­tic­u­lar in en­gi­neer­ing (e.g. con­struc­tion, crafts, au­to­mo­tive repairs, elec­tri­cal en­gi­neer­ing), finance (e.g. life insurance) and medicine (e.g. dental or medical service) – i.e. in areas where large, high-priced and long-term contracts are common. In these cases, consumer pro­tec­tors generally recommend obtaining a detailed cost estimate that lists all cost items trans­par­ent­ly and com­pre­hen­si­bly before the final contract is awarded.

The estimated costs should be used as guide­lines or ap­prox­i­mate estimates. The cost estimate must include a breakdown of the basis on which these estimates are cal­cu­lat­ed:

A pro­fes­sion­al cost estimate should therefore always be for­mu­lat­ed in writing and contain the following in­for­ma­tion:

• The nature and extent of the work to be carried out
• The working time that will be needed to do this
• The cost of the labor force employed
• The necessary material and the as­so­ci­at­ed costs

In addition, many companies offer their customers several options when quoting costs, which they can select or deselect at will in order to influence the quoted price – for example, for insurance packages.

Preparing a cost estimate can take a certain amount of time, and many companies un­der­stand­ably want to be re­mu­ner­at­ed for this – es­pe­cial­ly when it comes to extensive planning, complex cal­cu­la­tions, or even drafts. A fee for this service should always be agreed upon before the work is un­der­tak­en – it is common to agree on a fixed sum or a set amount, e.g. 10% of the order value. These fees are normally refunded when a contract is concluded or offset against the order. If the customer does not agree to the fee, the service provider can refuse to issue the cost estimate.

No. As a customer, you can and should formally accept the cost estimate by signing it, in order to have a basis for ne­go­ti­a­tion in the event of a dispute. However, the contract concluded with this content is legally non-binding for both parties. This means that the service provider does not have to guarantee the estimated costs’ accuracy, since it concerns just an estimate, not the final price (this is different with an offer). However, this cir­cum­stance is not always clear to every customer, which is why many companies ex­plic­it­ly state that “The cost estimate is non-binding.”

Nev­er­the­less, de­vi­a­tions from the original agree­ments do not remain without con­se­quence for the company you have concluded the contract with. However, the decisive factor is whether the costs involved are in­signif­i­cant or sig­nif­i­cant­ly in excess of estimated costs.

As a rule, the customer must tolerate a situation in which the actual costs and/or the im­ple­men­ta­tion time of an order deviate to a certain extent from the original cost estimate. Whether this deviation is con­sid­ered in­signif­i­cant, however, depends on the in­di­vid­ual case. It is generally accepted that an overrun of 10% is still con­sid­ered in­signif­i­cant, whereas 10-20% and higher are con­sid­ered sig­nif­i­cant.

However, the inherent non-binding nature of the estimate does not mean that it can be exceeded in­def­i­nite­ly without any con­se­quences. Sig­nif­i­cant over­step­ping of the pricing guide­lines can result in two con­se­quences:

In­for­ma­tion oblig­a­tion for service providers

As soon as a sub­stan­tial increase in the cost is foreseen, the service provider should inform the customer im­me­di­ate­ly. This gives the latter the op­por­tu­ni­ty to decide whether to continue the contract at a higher price. In this case, the maximum expected ex­ceedance should be con­trac­tu­al­ly stip­u­lat­ed so that it doesn’t become a vicious cycle of new ex­ceedances.

Ex­tra­or­di­nary right of ter­mi­na­tion for customers

The customer’s option to terminate the con­trac­tu­al re­la­tion­ship. This step should be taken if the service provider has in­ten­tion­al­ly exceeded the cost estimate, failed to comply with in­for­ma­tion oblig­a­tions, or if the ad­di­tion­al costs could have been avoided. In these cases, customers should seek legal advice as to whether or not they can terminate their contract. In the event of this occurring, the service provider can only claim re­mu­ner­a­tion cor­re­spond­ing to work already performed, plus any expenses not yet re­im­bursed.

Many service providers give the customer a choice: cost estimate or quotation? Here are the dif­fer­ences:

A cost estimate is a list of all an­tic­i­pat­ed costs and may require a fee. However, since it is not legally binding, the business owner may exceed the estimated sum within a certain framework without having to fear con­se­quences. The cost estimate therefore creates trans­paren­cy for the customer, but is also as­so­ci­at­ed with a certain cal­cu­la­tion risk.

A quote, on the other hand, is always binding, unless it has been ex­plic­it­ly marked as a “non-binding quote.” When the level of research required before issuing a quote is greater, a home or site visit to assess the en­vi­ron­ment is almost always un­der­tak­en. There is also usually a fee for this service. Once accepted by the customer, the service provider will not be able to change it af­ter­wards – they can therefore neither make it more expensive, nor change the terms of service. This gives the customer a certain security with the budget planning.

As a customer, you should always obtain a cost estimate for larger orders, as this provides important as­sis­tance in making a decision and is also com­plete­ly non-binding. However, the con­trac­tor also benefits from this non-binding nature, so that it is possible that the actual costs exceed the original estimates.

In the event of sig­nif­i­cant de­vi­a­tions, you can take legal action (depending on the leg­is­la­tion in place in your state – consult a legal pro­fes­sion­al if you are uncertain) and therefore reduce the financial loss incurred. If you want a more detailed breakdown of costs and want a reliable cal­cu­la­tion basis instead, however, you should obtain a binding quotation which cannot be changed by the con­trac­tu­al partner.

Click here for important legal dis­claimers.