Application for additional costs

Definition

A claim for additional costs is a formal notification from a contractor to the client that costs will be incurred during a construction project that exceed the scope originally agreed upon in the contract. It is a key tool in change order management and provides the legal and commercial basis for the payment of additional services.

In short: Contractors who fail to report additional costs in a timely and accurate manner risk having to cover them themselves—regardless of whether the work was actually performed.

What is a claim for additional costs?

In the construction industry, situations regularly arise in which the original scope of work specified in a contract is no longer sufficient to carry out a project as planned. Changes to the plans, unforeseen construction conditions, or additional work ordered result in a contractor having to perform more work than was specified in the original contract.

In this context, a notice of additional costs is the required notification that such costs will be incurred—even before the relevant work is performed. It creates transparency for both parties and enables the client to respond in a timely manner in terms of budgeting and planning.

The addendum itself should be distinguished from the notification of additional costs: While the notification of additional costs serves as an announcement, the addendum is the formally drafted proposal for the additional services, including specific pricing.

Legal Basis and Obligation to Provide Notice

Under German construction law, the obligation to report additional costs stems primarily from the VOB/B (German Construction Contract Procedures). Pursuant to Section 2 of the VOB/B, contractors are required to immediately notify the client of any changes or additional work before such work is performed.

Failure to comply with this reporting requirement may result in significant legal and financial consequences:

• The right to compensation may be waived in whole or in part
• Claims filed after the fact are difficult to enforce
• Disputes with clients, banks, or investors are more likely to arise
• The project documentation contains gaps that could pose problems during audits

For project controllers and project developers—such as the typical PROBIS user—this means that maintaining complete, transparent, and timely documentation of all cost overrun claims is not a bureaucratic burden, but rather a key safeguard for the entire project.

Process for Reporting Additional Costs

The process of submitting a claim for additional costs generally follows a structured procedure:

1. Identifying a cost-related variance – The contractor determines that a service is or will be required outside the scope of the contract.
2. Formal Notice – The claim for additional costs must be submitted in writing to the client, ideally with reference to the relevant contract item.
3. Supplemental Bid – A detailed supplemental bid, including a scope of work and cost estimate, will be submitted thereafter.
4. Review and Approval – The client or the client’s project controller reviews the request and either grants or negotiates approval.
5. Ordering and Documentation – Once an agreement has been reached, the amendment is ordered and documented in the contract management system.

Step 2 is particularly critical: The notification must be provided before the service is performed. Retrospective notifications are legally vulnerable and difficult to enforce in practice.

Claim for Additional Costs vs. Change Order – A Common Misconception

In practice, the terms "additional cost claim" and "supplement" are often used interchangeably. However, they represent two distinct steps in the same process:

Term

Time

Contents

Application for additional costs

Before services are provided

Notice of Additional Costs

Addendum

Following the announcement

Specific quote with services and price

This distinction is not merely academic: Anyone who submits a change order directly without first notifying the client of the additional costs risks having the client refuse payment—on the grounds that they were not informed in a timely manner.

Implications for project controllers and project developers

For project controllers, CFOs, and real estate developers, the systematic management of cost escalation requests is a critical factor in ensuring cost certainty for a project. In practice, efficient cost escalation management often fails due to the same issues:

• Reports of additional costs are communicated verbally and are not documented
• Deadlines are missed because there is no structured tracking system in place
• Responsibilities are unclear—who reviews, who approves?
• Stakeholders such as banks or investors do not receive a transparent overview

The result: costs spiral out of control, budgets are exceeded, and there is a lack of transparency for external auditors. It is precisely this scenario—uncontrolled cost dynamics in an ongoing project—that ranks among the key risks professional project controllers must manage on a daily basis.

Reporting Additional Costs in PROBIS

In the PROBIS software, the cost-overrun notification is an integral part of the Control module within the Contract Management section. There, all incoming and outgoing cost-overrun notifications can be recorded, managed, and tracked in a structured manner.

Among other things, this makes it possible to:

• Complete documentation of all announcements and related addenda
• Real-time overview of the current status of project add-ons
• Direct link to contract line items and cost plans
• Transparent reporting to banks, investors, and project stakeholders
• Reduction of manual processes and Excel-based tracking

In doing so, PROBIS addresses one of the most common weaknesses in project management: the fragmented, error-prone administration of change orders outside of central systems.

Synonyms and related terms

• Follow-up report – often used interchangeably, but refers more to the overarching process
• Notice of Additional Costs – Alternative Wording in Practice
• Addendum – the specific offer following the notification of additional costs
• Amendment Management – the overarching process for managing all contractual deviations
• Contract deviation – a general term for any deviation from the original scope of services
• Claim Management – a term referring to the systematic management of additional claims

Submitting a cost overrun report is much more than a mere formality. It serves as an early warning system for budget deviations and is a central component of professional project management. Those who consistently use and digitally manage this process not only safeguard their own negotiating position but also create the transparency that modern construction projects require from all stakeholders today.

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