What’s it worth, Guv?

The pages of this magazine have been dotted with references to quantum meruit recently, particularly in the context of letters of intent. Even those without much exposure to either the law or Latin know that quantum meruit has a certain magic: if it can be attained, it will make all a contractor’s dreams come true. Yet how can the lamp be made to release this genie?

Many of us have heard the barrack room lawyer’s plea: “The contract was frustrated – we claim a quantum meruit.” This, when translated, means: “I got the job by pricing cheap and now let’s see if I can at least recover my actual expenditure plus a good profit.” Frustration is a complex doctrine of law. It is often alleged but rarely found, particularly in building contracts.

There have been a number of cases in this area where the courts have found a quantum meruit to mean a fair rate for services provided rather than cost plus profit, yet there have been others that have given support to a proposition of cost plus profit.

Recently, in Serck Controls Limited vs Drake & Scull Engineering Limited the court had cause to explore the facts affecting the calculation of remuneration on a quantum meruit basis where no contract has been agreed. Serck carried out design and installation work for Drake & Scull on a job in Preston involving the replacement of a research and development facility for British Nuclear Fuel.

It was intended that Serck would be a subcontractor and Drake & Scull the M&E subcontractor. Serck duly carried out design and installation work between June 1995 and January 1997. A letter of intent was issued offering reasonable remuneration if no contract ensued, and authority to start work was given but no programme, or terms or conditions were agreed, as the parties did not intend to be bound until detailed terms of the subcontract had been negotiated. It was conceded that Serck was entitled to be paid on a quantum meruit basis.

The principal issue was how payment should be calculated. In particular, there were disputes as to:

Whether valuation should be computed by reference to the value to Drake & Scull or reasonable remuneration for work done by Serck

The relevance and effect of agreements as to price and scope of work during the negotiations

There are few rules for assessing quantum meruit

The letter of intent and contract negotiations are helpful but not final

Performance on site affects the Ifinal sum paid

The effect of the site conditions and disruption of work by Drake & Scull

Whether Drake & Scull was entitled to a deduction for loss incurred by the poor conduct alleged of Serck.

His Honour Judge Hicks was taken to key passages in Hudson’s Building and Engineering Contracts and Keating on Building Contracts. Judge Hicks found the summary from Keating most helpful and emphasised that the courts had laid down no rules limiting the way a reasonable sum should be assessed. As the letter of intent referred to “reasonable remuneration”, Judge Hicks held that Serck should be paid on that basis.

Second, while the contract negotiations over the scope and price of the work were helpful evidence of what the remuneration should be, the finally agreed concept design was not akin to the original scope of work, and so Serck should receive reasonable remuneration for work performed.

Third, Judge Hicks said Serck’s remuneration should take account of additional delays and costs arising out of site conditions or slip-ups by Drake & Scull.

Lastly, although Serck owed a limited duty to co-operate and liaise with other trades, Drake & Scull failed to establish that Serck was in breach of that duty and so, despite Drake & Scull’s diligent efforts, it was not entitled to any abatement.