Can a Client Ask a Contractor to Give Money Back on their construction project?

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"Nobody wants to give money back. But, we cannot be expected to be paid for work we have not done. We also cannot be expected to pay back money rightfully ours."

Contractors are usually quick to submit variation claims to the client asking for additional time and/or money. These construction claims are a result of changes and additions that the client has made to the construction works, or because the project conditions which could have been expected on the project are different (more adverse) than those actually encountered.
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But, sometimes the client makes changes, or there are other events, which could shorten the time the contractor takes to complete the project, or which reduces the contractor’s costs. Very few contractors voluntarily offer to provide a negative variation to the client - one which reduces the project cost or the time to complete the project. Should the client request a price or time reduction this is often met with indignation by the contractor.

​When Can Clients Ask for Money Back from the Contractor?

Clients can ask for money back, and in some cases even a reduction in the construction duration when:

1. The client has reduced the scope of the construction works from that which is in the contract document. Although, it should be noted that the client can’t remove the scope from the contract for the sole purpose of giving it to another contractor who has offered to do the work at a lower price. Nevertheless, in certain cases, the client can remove work for budgetary purposes, when planning permissions aren’t received, or because the item is no longer required.
2. The client changes the specifications to a lesser specification.
3. The client specifies a different item or product which is cheaper than the original items included in the contract.

However, in many cases, depending on the terms of the contract, contractors could be entitled to claim the loss of profit on the removed items, or on the difference between the cost of the original item and the new, lesser cost of the replacement items. It should also be noted that in all of the above cases if the contractor has already procured items which are now changed they would be entitled to claim the cost of the procured items, or when the items can be returned to the supplier for a refund, then all the costs of handling the item. They could also be entitled to claim their subcontractors’ costs associated with the above.
Clients can also claim money back from the contractor when:

1. The contractor isn’t able to attain the required quality standards and specifications and the contractor has negotiated a lower rate with the client for accepting the reduced specifications.
2. The contractor omitted an item and the client is happy to accept the omission on condition they are reimbursed the cost.
3. The client has provided materials or resources to the contractor which the contractor should have provided. However, usually the contractor should have been provided sufficient notice that the client will supply people, equipment or materials. Such supply should be generally provided when the contractor is in trouble and needs help to complete the work on time. Supply of materials which the contractor should have supplied in terms of the contract by the client should not be done because the client is able to procure the items cheaper elsewhere. 
4. The contractor has failed to rectify a deficiency as directed by the client and the client has had to employ another contractor to rectify the deficient item.
5. The contract price was based on a re-measurable schedule (bill of quantities) and the final measurements are less than the quantities originally priced. The contractor is only due payment on the actual final quantities as measured from the construction drawings.

It should be noted that in all cases the contractor should be charged a fair price and the contractor is entitled to request a breakdown of the charges and costs.

​When Can’t a Client Ask for Money Back from their contractor?

It is important to note that the client can’t ask the contractor for money back if:

1. The project has experienced better weather conditions than normal which have enabled the contractor to complete construction in a shorter time.
2. The contractor completed the project quicker because their resources were more productive, they used innovative construction methods and techniques, or even just because the construction schedule had more time in it than was required.
3. The contractor encountered better ground conditions or fewer interruptions to their work than was anticipated when they priced the construction project.
4. The contractor required fewer resources to complete the construction work than was envisaged when they priced the project – unless the basis of the contract is that the contractor is being paid according to the actual resources that they are using on the project.

Contractors cannot expect payment for work they have not done

None of us likes giving money back. However, as a contractor I prefer offering a negative variation before the client finds that they are entitled to money back. Preparing the variation means that I’m in control and it’s not left up to my client to do the calculations. Voluntarily giving money back establishes our credibility. Invariably the client will eventually find out that the contractor owes them money. When they do uncover the item they’ll think that the contractor has been deliberately dishonest claiming for work that they haven’t done. In addition, when the client calculates the money due to them they’ll often calculate that there is more money due than if the contractor had done the calculation first and then the contractor will have difficulty negotiating the value down.
Avoiding disputes on your construction project.
An introduction to construction variation claims for construction project managers video 12 - Negative Variation Claims

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