The two parties disputed the valuation basis outlined in the heads of agreement and the basis of payment for the work done subsequent to the original contract. The court took the view that the heads of agreement were intended to create contractual relations and thus constituted a contract. It therefore decided that since the work was not materially different from that done under the preceding contract, the subsequent work should be valued by reference to the rates and prices contained in it and the payment terms should be on the same basis.
It is not uncommon for contractors to tender for work at low rates in the hope of picking up ‘extras’, which can be charged out more profitably. In such cases, it is important for both parties to take particular care over the terms of contract which will apply.