You agree to complete a construction project for a set price. Halfway through, material costs rise or unexpected repairs add thousands of dollars to the estimate. Your customer refuses to pay more, leaving you to cover the difference. In Minnesota, who pays these extra costs often depends on your contract terms and what caused the increase.
How does your contract affect who pays?
Construction contracts divide financial responsibility differently. Three common arrangements include:
- Fixed-price contracts: You generally absorb cost increases within the agreed scope unless the contract allows additional charges.
- Cost-plus contracts: Your customer pays eligible project costs plus an agreed fee, which may be fixed or percentage-based. Some agreements set a maximum price.
- Time-and-materials contracts: You charge for labor and materials based on agreed rates, although spending limits may apply.
An estimate does not always guarantee the final price. A price escalation clause may allow you to adjust charges when material costs rise, depending on the agreed terms.
When can you charge for additional work?
Suppose your customer requests upgraded materials or you discover hidden damage that requires additional work. A change order can document the new scope, costs and approval.
For residential projects, Minnesota law requires licensed contractors to put covered agreements, including change orders, in writing. Both parties must sign and date these documents, which must describe the work, materials and price or how it will be calculated. The agreements must also include or reference written performance guidelines.
Commercial construction agreements follow different requirements, making their specific contract terms especially important.
What if your customer disputes the extra charges?
A disagreement may arise when your customer refuses to pay for work they claim was never authorized. Your original contract, change orders, invoices and project communications can help establish what both parties agreed to.
Address disputed costs before they affect your business
You are not automatically responsible for every cost increase, but your customer does not necessarily owe every additional charge. When payment terms are unclear, an attorney can review your contract and change orders, assess disputed charges and explain your options for resolving the disagreement.