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By: Alex Eged

In the recent case of Element Restorations Ltd. v. Arruda, 2026 BCSC 578 (“Element”), the British Columbia Supreme Court affirmed the fact that a construction contract, including a cost-plus contract, contains an implied term that the builder possesses sufficient knowledge and skill to accurately estimate the cost of undertaking the work subject of the contract.  Should that implied term be breached the other contracting party can terminate the contract and sue for damages leaving the builder exposed to costs it may have borne in performing the work prior to termination, loss of profits and payment of the other party’s costs to complete the project.

What was the Dispute in Element

The case involved the construction of a 120 square foot addition, to be used as a home office, to an existing home.  The builder was well-established and competent with many successful projects in its past including residential and commercial renovations and new construction work with budgets well over $1 million.  The homeowners had no experience with construction contracts and were funding the project through a small line of credit taken for that specific purpose.

The subject contract took the form of a “proposal” that outlined the work to be done including initial meetings, engineering design and inspections and all other steps related to planning design and engineering.  It also contained a section specifying that the proposal included foundation, framing, siding, drywall, painting and finishing at an average price of $230 per square foot.  The proposal was clearly noted to be based on an “estimated amount”, subject to change based on material choices with the project to be completed at cost plus 20%.  The total estimated price was $35,350.

The proposal was signed and a deposit of roughly 60% of the estimated cost paid.  As expected, the work did not commence for approximately seven months after the contract was signed.  After approximately three weeks of construction work the builder advised that a new budget would be forthcoming and that approximately $44,000 in costs had been incurred to date.  A week later the builder sent an itemized invoice for approximately $54,000 with the advice that a further itemized budget of $12,635 was required to complete the project. The itemized invoice and budget did not include the contractor’s fee of 20% which it agreed to waive in order to complete the project for approximately $69,000.

Shortly after receiving the itemized invoice and budget the homeowners terminated the contract. They had the project completed by another party for slightly more than $10,000 thus completing the project for slightly less than the originally estimated amount of $35,500.  The builder sued the homeowners for breach of contract and quantum meruit for $37,000 plus contractual interest of $26,000 for a total, including the original deposit, of $84,250.

What did the Court Decide?

The essence of the court’s ruling relied on the law that a construction contract, even a cost-plus construction contract, contains an implied term that the builder has sufficient knowledge and skill to accurately estimate the cost of the planned work.  The court found that the builder breached the contract by failing to do this.  The court’s conclusion was based on three primary factors:

1. the builder admitted that cost per square foot is the incorrect metric on which to base the cost of a small job;
2. the builder failed to review or adjust the budget after the plans and drawings were completed; and
3. the builder failed to promptly notify the homeowners of the significant cost overruns that it knew of shortly after the work was commenced.

The court acknowledged that estimates for costs of services are not guarantees or warranties at law but that they do carry contractual effect particularly when a builder holds itself out as having expertise and when the other contracting party is inexperienced and paying with borrowed money.  The law cures this power imbalance by requiring, absent exceptional circumstances, that the final cost of a building contract should fall somewhere in reasonable proximity to the estimated cost. In stating this consumer protection goal the court relied on an Ontario Superior Court decision that held this “reasonable proximity” to be 5%.

What are the Key Takeaways for Stakeholders?

Builders, renovation contractors and repair persons are well advised to very carefully consider their project cost estimates even when working within the parameters of a cost-plus contract.  These cost estimates ought to be regularly reviewed in order to ensure continuing accuracy and when deemed to no longer be accurate new costs estimates must promptly be provided.

Other factors to keep in mind are the stated importance of price to the owner, the owners knowledge and experience with construction projects, the inclusion or exclusion of design services in the contract with the former creating a greater element of control and thus onus on the builder, the communications related to underlying rates for labour, equipment and materials, the owner’s own knowledge of escalating costs and the clarity of communications between the parties of project alterations.

Contract administration remains a very important part of construction contract performance and builders that place minimal resources toward this aspect of their work will usually be held accountable by the courts for lack of clarity.

If you have any questions regarding this article, please contact the author, Alex Eged, or any member of our Construction Law group.