Additional Payment for Work Done Outside the Scope of Construction Contracts

[Saksham Gahoi is a 4th Year Student of National Law Institute University, Bhopal]

Introduction

What can be constituted as a work within or outside the scope of work under a construction contract has been a point of dispute amongst parties resulting in numerous commercial arbitrations. This leads to another question whether such work which is outside the scope of contract entitles a party to claim additional payment for the work done. Courts have previously applied the principle of quantum meruitwhich is useful in cases where there has been no express contract for the work done by the contractor. There are usually two heads under which the contractors seek additional payment, i.e., ‘extra work’ and ‘additional work’. The interpretation of these two expressions will also be discussed below in the light of construction contracts.

Distinguishing Extra Work from Additional Work

According to the book Treatise on Public Contractsadditional work is the work which is necessarily required by the terms of the contract while on the other hand, extra work includes work arising completely outside the terms of the contract. It has been further observed that the object and purpose of the contract and intention of the parties to the contract also play an important role in determining whether a work can be constituted as extra or not. If, on reading of the entire content of the contract, one forms an impression that the intention of the parties was to include the work which is averred to be outside the scope of the contract, then it cannot be said to be extra or additional work and no additional compensation for that work can be sought for. Hence, for example, if the intention of the party was to deliver a completed structure then any work done in furtherance of building that structure will not entitle the contractor to claim for additional payment and would be considered as incidental to the completion of the contract. The Supreme Court in Food Corporation of India v. Vikas Majdoor Kamdar Sahkari(2007) observed that ‘extra work’ arises only in relation to the work not expressly or impliedly included in the original contract.

The courts in the past have been more willing to provide for additional cost of construction for extra work and not for additional work,[i]but there are some conditions to be fulfilled before a claim for additional payment is considered.

Requirement for Grant of Additional Payment

Firstly, as has been discussed above, the work should be outside contractor’s express or implied obligations in regard to the work described in the contract.Secondly, it should have been ordered by and on behalf of the owner. It would be unfair for the owner to be paying for the extra work it has not consented to as the owner has right to know the liability that is going to be incurred.[ii]Thirdly, the owner should either by words or conduct have agreed to pay for it.Fourthly, the work should not have been rendered by the fault of the contractor. Fifthly, the work done should not be intended to be done gratuitously by the contractor because in accordance with section 70 of the Indian Contract Act, 1872.

Arbitrators’ Power to Grant Additional Payment

It has been a common practice for arbitrators to grant additional compensation to the contractors in the matter of delay in construction in which the other party is at fault[iii]or for the additional work done by the contractor on the instructions of the opposite party. But it has to be kept in mind that the arbitrator while adjudicating on a matter has to work under the four corners of the contract and has to consider all the clauses under the contract to determine whether the claim for the additional payment satisfies the essential terms of the contract. If the claim does not satisfy the same, then the arbitral tribunal cannot pass orders which are not the subject matter of reference as an arbitral tribunal is not a court of law and it cannot exercise its power ex debito justitiae.

Principle of Quantum Meruit

Whenever there has been any dispute where additional payment is being sought by the contractors for the work done out of the scope of the contract, the courts have been willing to apply the “Principle of Quantum Meruit.” Quantum Meruit is a reasonable sum of money paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract. It is also applied where, for some reasons, a contract is held not to be valid. Under such circumstances, an implied contract is assumed by which the person for whom the work is to be done contracts to pay reasonably for the work done to the person who does the work.[iv]Section 70 of the Indian Contract Act, 1872 is based on the same principle.

One of the main checkpoints while applying the principle of quantum meruit is that the price of the work done should not be fixed under the contract and the work done and service rendered should not be pursuant to the terms of the contract.[v]The Supreme Court has been strictly following this condition as in the case of Satyanarayan Construction Co. v. Union of India(2011) where the Court disallowed a grant of additional payment to the contractor for the price of the work already mentioned in the contract despite of the fact that the contractor incurred almost double the cost mentioned in the contract. Another requisite for claiming additional payment under quantum meruit was laid down in Puran Lal Shah v. State of U.P.(1971)which stated that the requirements under the original contract must be discharged by the contractor. The contractor cannot claim payment under quantum meruit if it breaks the contract even though it may have partially performed part of its duty.

Conclusively, the courts and tribunals have been following a fixed set of rules and principles while deciding whether a particular set of work requires additional payment or not, but whether that particular set has to be taken within the scope of contract or not has to be decided as per the terms of contract and the intention of the parties. Due to the increasing number of disputes regarding this subject matter, it is suggested that the parties to the construction contract should exercise care to frame the terms of the contract in a more transparent manner to clearly define the extent to which the work has to be carried out by the contractor.

Saksham Gahoi

[i] Spirtas Company v. Division of Design and Construction, 131 S.W.3d 411, 419 (Mo.App. W.D. 2004).

[ii]Watson Lumber Company v. Guennewig, 79 Ill. App. 2d 377 (1967)                

[iii]Som Datt Builders Ltd. v. State of Kerala, (2009) 14 SCR 611

[iv]Food Corporation of India v. Vikas Majdoor Kamdar Sahkari, (2007) 13 SCC 544

[v]Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588

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