Legal consequences of an exceeded cost estimate

OLG Saarbrücken, verdict from 19 November 2014 – 2 U 172/13

Facts of the case:
Upon request from the defendant, the claimant, an earthworks company, compiled a handwritten cost estimate for work involving the building of a wall among other things. After the slope on the claimant's premises slipped off, the claimant took emergency action upon request from the defendant, and erected a supporting wall from stones. The defendant only paid for part of the labour costs. The claimant was able to enforce payment of the remaining amount in court. 

A cost estimate (sec. 650 BGB) is a non binding calculation of the costs expected to be incurred based on an expert opinion provided by a company. It is not part of the contract and the contractor is therefore not bound by the estimated cost. It is a different case when arranging a fixed or flat rate fee or another type of remuneration agreement. In this case, the contractor has to guarantee the agreed price. 

However, if a contractor intentionally compiles an inaccurate cost estimate, they make themselves potentially liable to pay damages. In order to not make themselves liable to pay damages, they must inform the customer immediately if the cost estimate is expected to be exceeded by a significant amount. 

However, if an increase in the cost of the work is evident and obvious for all parties, or if the customer is aware that the cost estimate will be exceeded, then according to the OLG Saarbrücken, there shall be no entitlement to compensation despite the lack of notification regarding the cost overrun. 

If the contractor has not informed the customer that the cost estimate is expected to be exceeded, despite the fact that this was indeed not obvious, then the customer is entitled to terminate the service contract. 

However, if the customer does not terminate the service contract, then according to the OLG Saarbrücken, they are not entitled to any compensation, if they are reliant on the work being carried out and it would not have been possible to get it done any cheaper elsewhere. This scenario would not entail any damage to the customer. 

Verdict ruled in NJW [Legal Weekly Magazine] 12/2015, page 879 ff.