Settling the contract sum is often a bone of contention between contractors and clients, both during the execution phase and after delivery. Which price does the client owe the contractor if the contract sum does not appear clearly from the agreement? Two recent judgments from the Arbitration Board in Building Disputes give insight into the way in which this pricing is assessed in Dutch case law (based on Dutch law). [1] In both cases, the client (or main contractor) has not paid part of the contractor’s invoices. The contractor (or subcontractor) claims payment of those invoices. For the sake of readability, I will use the terms 'client' and 'contractor', on the understanding that 'client' also comprises the main contractor and 'contractor' also the subcontractor.
Positions of the parties
In both cases the contractor takes the position that the client owes the outstanding invoices, since the parties have concluded a contract for services on cost-plus basis (subsequent costing). In the client's opinion, on the other hand, the parties had agreed on a fixed contract sum so that no more is due than that fixed price, in principle. Alternatively, the client takes the position that a recommended price was agreed, subject to a maximum excess of 10% pursuant to Section 7:752 of the Dutch Civil Code.
All in all: the contractor claims payment of the unpaid invoices, but the client believes it does not have to pay more than the fixed or recommended price agreed.
Division of burden of proof
The arbitrators pointed out that the burden of proof for the existence of a fixed price agreed is, according to established case law, on the person relying on it – in this case, the client. Arbitrators use the same division of the burden of proof for the recommenced price. To defend himself against the payment of the outstanding invoices claimed, the client must therefore furnish sufficient facts and circumstances from which it follows that a fixed or recommended price has been agreed, and that the amounts claimed exceed this price. The arbitrators then used the ‘Haviltex standard’ in assessing what the parties had agreed with each other about the price. All the relevant circumstances of the case play a role here.
Relevant circumstances
Case law on pricing is very casuistic in nature, because arbitrators evaluate all relevant circumstances of the case in coherence. On the basis of these two judgments of the Arbitration Board in Building Disputes, a few factors can roughly be deduced that may play a role in assessing the pricing. Here are some examples.
The formation of the agreement
- If the client did not yet have an (approved) final design at the time of closing, it is likely that the contractor was not (sufficiently) able to mark the work down. This indicates an agreement on cost-plus basis.
The contents of the agreement
- A surcharge of 10% on materials supplied, subcontractors and installations indicates a cost-plus basis.
The performance of the agreement
- Assigning additional work indicates a fixed contract sum. In the case of cost-plus basis, there is no additional work as referred to in Section 7:755 of the Dutch Civil Code.
Invoicing and Payment
- The enclosing of hourly time sheets and materials requisition forms with invoices indicates a cost-plus basis.
The judgment
In both cases, the arbitrators allowed the contractor’s claims. The arbitrators held that the clients furnished insufficient facts and made it insufficiently plausible that the parties had agreed on a fixed contract sum or recommended price, and/or that the client could reasonably have confidence in those. Since the clients have not (or not sufficiently) contested that the hours and costs of materials have been incurred indeed, the arbitrators presume that the costs charged are correct and reasonable. In both cases, the clients are therefore obliged to pay the outstanding invoices.
Conclusion
Although the opinion of the arbitrators on the pricing is strongly casuistic in nature, these rulings do display a general line with regard to the distribution of the obligation to state facts and the burden of proof between the contractor and the client.
The contractor who claims payment of outstanding invoices on a cost-plus basis at law, must prove on the basis of specifications of hours and materials that these execution costs have actually been incurred. On the basis of facts and circumstances, the contractor will have to prove that the parties have concluded an agreement on a cost-plus basis.
The client who refuses to pay invoices of the contractor because of an excess of the fixed or recommended price bears a considerable obligation to furnish facts and burden of proof to defend themselves against the contractor's claim for payment. The starting point is that the client owes a reasonable price (Section 7:752 Dutch Civil Code). The client has to furnish facts and circumstances to prove that a fixed or recommended price was agreed (and that the contractor’s amounts claimed exceed this price). If the client fails to dispute the contents or the invoices (or not sufficiently), arbitrators will in principle assume that the costs charged by the contractor are correct and reasonable.
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[1] No. 37.717 dated 30 January 2025 and No. 37.837 dated 26 February 2025.
