Concept and Importance of Cost Estimates
Ein Cost Estimate is, in legal terms, a binding or non-binding declaration by a contractor, service provider, or entrepreneur regarding the anticipated costs of an intended service or work. A cost estimate is issued in many sectors—such as construction, repair, or service industries—in order to allow the client to assess the expected financial expenditure. The issuance of a cost estimate is essential for transparency and planning in contract execution and often serves as the basis for concluding a main contract.
Legal Classification of the Cost Estimate
General Law of Obligations
A cost estimate is not an independent contract, but a declaration of intent with pre-contractual effect. Legally, it is necessary to distinguish whether the cost estimate is designated as non-binding or binding.
Non-binding Cost Estimate
As a rule, a cost estimate is regarded as non-binding (Section 650 BGB, analogously), unless expressly agreed otherwise. This means that the prices stated in the cost estimate are not binding on the contractor; rather, they serve merely as guidance and allow the client to plan their budget.
Binding Cost Estimate
If the binding nature of the cost estimate is expressly agreed upon in the contract, it has the character of a binding price agreement (Section 650 para. 2 BGB). In such cases, the costs stated in the cost estimate may generally not be exceeded in the subsequent invoice.
Statutory Provisions under Contract Law
The German Civil Code (BGB) regulates several aspects of the cost estimate, especially in connection with contracts for work and services.
Section 650 BGB – Remuneration According to Cost Estimate
According to Section 650 para. 1 BGB, the contractor must adhere to the agreed price unless cost statements are expressly designated as non-binding. Exceeding this is only possible in exceptional cases and must be promptly communicated to the customer. If the contractor continues the work without agreement on increased prices, the customer can terminate the contract extraordinarily.
Duty of Information and Notification
Pursuant to Section 650 para. 2 BGB, the contractor is obliged to give notice if, during execution, it becomes apparent that the actual costs will substantially exceed the cost estimate. If this information is not provided, the contractor risks losing their claim to additional payment.
Content, Form, and Conclusion
Content Requirements
A cost estimate should list all anticipated items and their costs in a transparent and comprehensible manner. Essential components include:
- Description of Services
- List of Materials
- Work Times
- Unit Prices and Total Prices
- Validity Period of the Offer
Although the law does not prescribe a specific form, written form is recommended for reasons of proof.
Conclusion
A cost estimate is usually prepared at the request of the client and can be provided free of charge or for a separate fee. Upon acceptance of the cost estimate at the latest, the actual contract for work or services is concluded, provided no further contractual agreements are made.
Remuneration for Preparing a Cost Estimate
The obligation to pay for preparing a cost estimate is regulated by law in Section 632 para. 3 BGB. According to this provision, the contractor cannot demand payment for the cost estimate unless this is expressly agreed. An exception applies where preparation is particularly laborious or requires special testing and planning services.
Legal Consequences of Exceeding the Cost Estimate
If the contractor significantly exceeds the non-binding cost estimate, the client is entitled to withdraw from the contract (Section 650 BGB). An excess of up to 10–20% is often considered tolerable; greater discrepancies may justify contract termination, and services already rendered must be compensated proportionally.
Importance in Consumer Protection
According to the Price Indication Ordinance (PAngV) and the German Civil Code, clear and comprehensible cost estimates are of particular importance, especially for consumers. Misleading or inadequately explained cost estimates may disadvantage consumers. In some sectors, there are also specific information requirements—for example, in car repairs or the construction industry.
Distinction from Offer, Estimate, and Invoice
A cost estimate is legally distinct from an offer, as the latter is a binding declaration of intent that immediately leads to the conclusion of a contract. An estimate is even less binding than a cost estimate and is often based only on empirical values. The invoice, by contrast, itemizes services actually performed and serves as the basis for payment processing.
Conclusion
The cost estimate is a crucial tool for both clients and contractors to ensure transparency, certainty in planning, and cost estimation within contractual relationships. Its legal implications—especially concerning bindingness, the obligation to notify of cost overruns, and remuneration for its preparation—are thoroughly regulated in German civil law. Competent and precise handling of cost estimates protects the rights of both contracting parties and significantly contributes to fair and efficient contract execution.
See also:
- Contract for Work and Services
- Price Indication Ordinance
- Right of Withdrawal in Consumer Contracts
- Offer in the Law of Obligations
Frequently Asked Questions
Is a cost estimate legally binding?
A cost estimate is generally only a non-binding estimate of the expected costs for a particular service or product (Section 650 BGB). It does not oblige the contractor to perform the service exactly at that price. Merely preparing and submitting a cost estimate does not in itself create a binding contract between the parties. However, binding force can arise through an express contractual agreement. If a “binding cost estimate” is confirmed in writing, the final amount may, as a rule, not exceed the specified price—unless unforeseeable circumstances arise, in which case the client must be informed without delay. In the event of overruns without prior notice, the client may, under certain circumstances, withdraw from the contract or claim damages.
Does the client have to pay for a cost estimate?
As a rule, a simple, unsolicited cost estimate is free of charge in the legal sense unless a special agreement on payment has been made (Section 632 para. 3 BGB). Many service providers, however, indicate in advance that a fee will be charged for more complex calculations, particularly if these require extensive examinations or measures. In the event of a dispute, the provider must prove that payment was expressly agreed upon—e.g., through notes in the offer or written consent from the client. If an order is placed based on this, the costs of the cost estimate can generally be offset against the final invoice.
What happens if the cost estimate is significantly exceeded?
If the total amount specified in the cost estimate is substantially—generally from about 10–20%—exceeded, the contractor must inform the client immediately (Section 650 para. 2 BGB). If this notification is omitted, the customer may terminate the contract for good cause and is entitled to pay only for services rendered at the contractually agreed price, but is not required to bear the additional costs caused by the overrun. If the contractor fulfills their obligation to provide timely information, the customer can decide whether to continue the contract on improved terms or to abort it. Any reasonable costs already incurred must then be paid by the customer.
Does the client have the right to obtain the cost estimate?
Legally, the client is entitled to receive a written cost estimate provided it has been specifically requested and the contractor has agreed to prepare one. The cost estimate is a description of services and forms the basis for invoicing before a possible contract is concluded. The client is generally not obliged to accept the resulting offer but may use the cost estimate as a basis for further quotes and negotiations.
Can claims for damages arise from a cost estimate?
Yes, under certain circumstances, claims for damages may result from a cost estimate. This is particularly the case if the cost estimate was prepared with gross negligence or intent and the client suffers a loss—for example, due to resulting misallocations. To assert a claim for damages, the client must prove that the cost estimate was incorrect, that the error was due to a breach of duty by the issuer, and that actual damage was incurred. This may relate, for example, to replacement procurement, consequential costs, or lost securities.
In which cases can a cost estimate be revoked?
The right to revoke a cost estimate does not exist automatically, but depends on the type and formation of the respective legal transaction. If the customer is a consumer and the cost estimate was provided as part of a distance contract or outside business premises, the statutory right of withdrawal applies pursuant to Sections 355, 312g BGB. In other scenarios (e.g., business transactions, on-site in business premises), a right of withdrawal generally does not exist. However, the cost estimate itself is not a contract, but merely an offer, so the customer is not obliged to place an order based on it. Revocation is only possible for an order already placed based on the cost estimate in compliance with the relevant statutory provisions.
What formal requirements apply to cost estimates?
The law does not prescribe any mandatory form for cost estimates; they may be provided orally or in writing. However, written form is always recommended for purposes of proof. In trades or business, written, detailed cost estimates are customary and serve as the basis for later contracts. In case of dispute, the content of the cost estimate must be provable, which is why documented communication is advisable. In particular, for binding cost estimates, it is recommended that all relevant arrangements are recorded in correspondence.
