Cost Plus Contracts- What should I put in the “Estimated Total Contract” field on the preliminary notice?

8 months ago

For California, but other states too! There are times where I’m able to make a “ball park” estimate, but not always.

Senior Legal Associate Levelset
414 reviews

It’s extremely common for a construction business to be at least a little bit unsure of what the total price of their work will be at the start of a construction project. As you mention above – a cost plus contract is a prime example. Still, California, like some other states, requires a construction business to include “An estimate of the total price of the work provided and to be provided.” 

Ultimately, this requires an honest, good faith, reasonably calculated estimate. It does not require an exact estimate, and misjudging the price of the work won’t be fatal to a lien claim later on as long as the original estimate was reasonable based on all of the information the notice-sender had at the time. But, a complete guess would likely not be sufficient.

It’s not a perfect parallel, but the estimation of a contract price for the purposes of sending notice is discussed some in the following articles:

– California Preliminary Notice: Should I Add 20% To The Estimated Contract Value?
– Should I Send Multiple Preliminary Notices in California If the Amount of Work Changes?

Arizona’s preliminary notice rules are a bit different

Notice rules vary state by state, and most states won’t require any amount to appear on a prelim. But, in the cases where an estimate is required, as long as the estimate is made in good faith and based on some rational calculations, the estimate will be acceptable.

However, Arizona does treat notice estimates a little bit differently than other states. In Arizona, if the original estimate is too low, a notice-sender may need to revise their notice. That is, if the price of the work exceeds the original estimate by 20% or more, the notice-sender must send a revised preliminary immediately.

You can learn more about that here: Arizona’s 20% Preliminary Notice Rule.

Disclaimer: The information presented here is not legal advice and should not be construed as such. Rather, this content is provided for informational purposes. Do not act on this information as if it is advice. Further, this post does not create any attorney-client relationship. If you do need legal advice, seek the help of a local attorney.
Managing Partner Gibbs Giden LLP
36 reviews

Matt is spot on.  In California, a complete guess is not a proper estimate and will subject your lien, stop payment notice, or bond claim to forfeiture.  Our appellate courts have told us that you cannot make the number up “out of whole cloth” — rather, there must be a “rational basis” for the amount you estimate.   Often times, it is a good idea to have your customer give you their estimate of what it will ultimately cost.


Disclaimer: NOTE: The information presented here is general in nature and is not intended nor should be construed as legal advice for any particular case or client. The content contained herein is published online for informational purposes only, may not reflect the most current legal developments, verdicts or settlements, and does not constitute legal advice. Do not act on the information contained herein without seeking the advice of licensed counsel. This posting does not create any attorney-client relationship and is neither intended to constitute an advertisement nor a solicitation.
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