Is an Estimate Legally Binding? | A Small Business Primer
An estimate is usually not legally binding. However, some bids are mislabeled as estimates. A bid is considered an offer under contract law. If an offer is accepted, a contract is established and becomes legally binding. The provider can’t withdraw their offer or the client their acceptance of said offer, according to Small Business Forum.
In this article, we’ll cover:
Is an Estimate Binding?
An estimate usually isn’t legally binding for either the client or small business providing the estimate. Learn more about what exactly an estimate is in this article.
An estimate is normally what a small business believes the cost of its services will be for a certain project. It is not binding because it doesn’t include final costs, just an approximation of what the costs will be. The estimate should state what factors will determine the final amount, like project timeline.
- For example, a moving company sends a homeowner an estimate that says it will cost $10,000 to move the entire contents of their old home to their new home in the next state. This number is based upon the estimated weight of the owner’s possessions, the distance to travel, packing services and mover’s insurance. The estimate will state that the final price can vary based on the actual weight of the contents of the house.
However, an estimate can be binding if it says specifically that all costs are final and guaranteed and that you and your client are bound to these fees. A binding estimate must be in writing and a copy sent to the client before the service is provided.
- For example, a moving company gives a homeowner an estimate that states it is binding. The costs listed are final and cannot increase or decrease, even if the homeowner’s possessions are heavier than estimated. If the homeowner requests additional services, then the mover will ask you to sign an addendum to the binding estimate that includes these new costs.
When an Estimate Is Actually a Bid
Some bids are labelled incorrectly as estimates.
Sometimes a small business will use the word “estimate” at the top of a document, but they are actually creating a bid as the language of the document makes it so.
- For example, a bid states that the job offer can only be accepted until a certain date. The estimate is actually not a approximation of costs but a bid for work.
Bids are proposals that detail the cost of a project. They are common in the construction industry and with sub-contractors. A company chooses a contractor from several bids submitted.
Contract law says that bids are considered offers, which can be accepted or rejected. A small business can withdraw their offer whenever they like.
If an offer is accepted it becomes a contract. A contract can be written or verbal.
A contract is legally binding because one party (the small business) is essentially promising to perform a service in exchange for another party (the client) paying them for that service.
Each party then has rights that are legally enforceable as long as the offer is accepted. Neither the client nor the small business can then withdraw the offer or their acceptance.
How Offers Can Become Contracts
To become a contract, an offer must include:
- Who the parties are (client and provider)
- A clear offer: “I will design you a logo for $500”
- Price of services to be provided
- Any other essential terms
- Clear acceptance: “I will pay for a logo from you for $500”
That said, you can include a line in your bid that a contract is formed only when the bid is accepted and a formal written agreement is signed.
A written agreement may be a good idea anyway, as you can more finely detail the obligations for both the provider and client.
People also ask:
What Is an Estimate vs. a Contract?
An estimate is a non-legally binding document. It is an approximation of costs for a project, drawn up by a business to send to a client. It is not a promise. The small business providing the estimate can withdraw their offer or the client can reject it. Neither side is bound to its terms.
A contract is a legal agreement between parties where each promises to do something, according to the Houston Chronicle. The contract is legally binding under contract law and if either party doesn’t fulfill his or her promises, they can be sued.