When it comes to running a business, you may find that you need to provide prospective customers with an estimate of the total cost before you begin the project. For example, if you're going to build a website or remodel a home, you may charge a certain amount per hour plus the cost of supplies and tools. The customer will then want a detailed quote before the work begins so that they can start to plan and budget.
In most cases, estimates are not legally binding. In other words, if you told the customer that it would take about 20 hours to complete their small electrical project, but it ends up taking 24 hours, you can still submit to them a final bill that has the full cost. The customer understands that the written estimate was only your approximation, not a final bill. You can include additional charges should they arise, and your price doesn't have to exactly match the original estimate.
However, it's important to note that there are some situations where an estimated price can become legally binding, and a lot of it has to do with language. Legally speaking, whether the number you give for your job is considered an estimate or a bid/offer will depend on how the document is worded and structured.
In this guide, we'll discuss estimates as both written agreements and verbal agreements to help you determine whether what you've presented to a customer is legally binding. Skynova's free estimate template can also help you structure your estimates so that you provide your customers with the most accurate information possible. The template even includes a space to add a disclaimer to help you clarify whether the price quote presented is legally binding.
Is an Estimate or Bid Legally Binding?
In most situations, an estimate will not be legally binding. Its purpose is to provide prospective customers with a rough estimate of what they can expect when it comes to the project cost. However, when it comes to bids, you can find yourself in a legally binding contract if you make an official offer to do a job for a set cost and the customer accepts your offer. If the bid or offer gets accepted, the final amount due will need to match what you said it would.
It's important for professionals to understand this difference and prepare their documentation to reflect what they want to create. The title of the document, "Estimate" versus "Bid," will not matter as much as the content it contains when it comes to determining if you made an estimate or a bid in a legal situation.
When Estimates Are Legally Binding
An estimate is typically not legally binding for either the customer or the company making the estimate. This is because the estimate doesn't include the absolute final costs, only an approximation of what the costs will likely be, depending on the number of hours on-site you think the project will take and what supplies will be necessary. The estimate may also include your best guess for details, such as the schedule that you will follow and if you have any subcontractors who will help with the work. In essence, it will record your scope of work and pricing.
However, if businesses want to make sure their estimates remain nonbinding, it's important that they don't provide any sort of indication that these costs are final or guaranteed in any way. If you indicate any sort of promise, and the homeowner accepts your proposal, it may become binding between you and the customer for the work promised. Suppose you want the contract to become legally binding between you and the customer. In that case, you must submit the documentation to the customer before beginning the work, and they must explicitly agree to the terms outlined.
How Estimates Can Be Bids
Small businesses must remember that what they title a document doesn't impact how it's viewed from a legal standpoint as much as the language included within it. Labeling a document as an estimate doesn't automatically make it so if the document positions itself more as a bid.
With a bid, the key difference is in the inclusion of a certain date that the customer must accept the proposal by. Placing this type of wording creates a clear indication that this is not an approximation of the costs associated with completing the job but a bid for the work. The bid will include a concrete fixed price that the work will cost, and the prospective customer has the option to accept or reject it. If the customer signs it, it becomes a binding contract most of the time.
How Bids Become Legally Binding Contracts
When it comes to governing contracts between two parties, the law largely considered bids to be offers. Therefore, bids can be explicitly accepted or rejected. A bid can also be withdrawn by the business before it's accepted by the customer. However, once the customer accepts the offer or bid, the document typically becomes legally binding for both parties involved. The business has promised to complete a certain job for a certain amount of money, and the customer has agreed to pay that amount of money for the completion of the project.
In other words, estimates only provide potential clients with an approximation of the cost and time needed to complete a project but don't offer any type of guarantee or promise. Once you begin to make a promise to a customer, let them know what it will cost them, and give them a time period in which they have to accept or reject it, it becomes a bid. The bid can then become more of a legally binding contract if the customer signs it and agrees to the terms.
Let Skynova Help You Create a Professional Estimate or Bid
Creating professional estimates can play an important role in growing your business. These estimates help to create a quality first impression when engaging with customers initially. Creating appealing estimates and proposals can help you bring in more customers.
However, there are many factors that business owners need to consider when preparing to submit an estimate. They need to have a good idea of how long it will take to get through the project. They also need to consider any tools or supplies they will need. As you begin to tally these items, you then want to submit documentation that looks professional and clear for customers to understand. Fortunately, Skynova has a free estimate and bid template that you can use to create professional documents for your organization.
Using these templates, it's easy to create documentation that can be submitted to customers for an estimate or bid. Once you have the job, Skynova offers a variety of other free templates that you can use to keep your project moving forward, including a deposit request template, a receipt template, and an invoice template.
As you work with customers and want to submit ideas and proposals of how much your projects will cost, make sure you understand the difference between estimates, bids, and legally binding contracts. If you need legal advice on how to navigate between these definitions, speak with a business lawyer familiar with contract law. Working with a law firm can answer any questions you have about your documentation and how to raise payment terms with customers.
Use the appropriate language and terminology to bring in customers and win the contracts that will help you thrive.
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