Notification of Additional Costs

Definition

The notification of additional costs is a formal announcement by a contractor to the client, indicating that expenses exceeding the originally agreed contract scope will be incurred within a construction project. It serves as a central instrument in change order management, establishing the legal and commercial foundation for the remuneration of supplementary services.

In short: Contractors who fail to report additional costs promptly and accurately risk bearing these costs – irrespective of whether the service was actually rendered.

What is a Claim for Additional Costs?

In construction, situations regularly arise where the original scope of work in a contract is no longer sufficient to implement a project as planned. Changed plans, unforeseen construction conditions, or additionally commissioned services lead to a contractor having to perform more than what was stipulated in the original contract.

In this context, the notification of additional costs is the mandatory announcement that such additional costs will arise – even before the corresponding service is performed. It creates transparency for both parties and enables the client to react proactively in terms of estimation and planning.

The change order itself must be distinguished from the notification of additional costs. While the notification serves as an announcement, the change order constitutes the formally prepared offer for the supplementary service, complete with specific pricing.

Legal Basis and Obligation to Notify

The obligation to report additional costs in German construction law primarily stems from VOB/B (German Construction Contract Procedures). Pursuant to § 2 VOB/B, contractors are required to promptly notify of any changed or additional services before their execution.

Failure to comply with this disclosure requirement can lead to significant legal and financial consequences:

• The claim to remuneration may be wholly or partially forfeited.
• Post-contractual claims are challenging to enforce.
• Disputes with Clients, Banks, or Investors are Becoming More Likely
• The project documentation exhibits deficiencies that could become problematic during audits.

For project controllers and project developers, such as typical PROBIS users, this implies that comprehensive, traceable, and timely documentation of all change order claims is not a mere bureaucratic burden, but rather a critical protective measure for the entire project.

Process for additional cost notification

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

1. Identification of cost-relevant deviation – The contractor determines that a service outside the contractual scope is or will be required.
2. Formal Notification – The claim for additional costs must be formally submitted in writing to the client, ideally referencing the affected contract item.
3. Change Order Proposal – Subsequently, a concrete change order proposal, including a scope of work description and calculation, is submitted.
4. Review and Approval – The client or their project controller reviews the application and grants or negotiates approval.
5. Commissioning and Documentation – Following agreement, the addendum is commissioned and documented within contract management.

Step 2 is particularly critical: The notification must be made before the service is rendered. Subsequent registrations are legally vulnerable and difficult to enforce in practice.

Claim for additional costs vs. Change Order – a common misconception

In practice, the terms 'Mehrkostenanmeldung' (additional cost notification) and 'Nachtrag' (supplementary claim) are often used interchangeably. However, they represent two distinct stages within the same process:

Term

Point in Time

Content

Notification of Additional Costs

Prior to Service Delivery

Notification of accruing additional costs

Change Order

Following the announcement

Specific offer detailing scope of services and pricing

This distinction is not merely academic: Submitting a supplementary claim directly without prior notification of additional costs risks the client refusing payment, arguing that they were not informed in a timely manner.

Significance for Project Controllers and Project Developers

For project controllers, CFOs, and real estate developers, the systematic management of change order claims is a decisive factor in ensuring project cost certainty. In practice, efficient change order management frequently encounters recurring challenges:

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

The consequence: Costs escalate uncontrollably, budgets are exceeded, and transparency for external auditors is lacking. This precise scenario – uncontrolled cost dynamics within an ongoing project – represents one of the core risks that professional project controllers must manage daily.

Claim for additional costs in PROBIS

Within the PROBIS software, additional cost notifications are an integral part of the Control Module in contract management. This functionality allows for the structured recording, management, and tracking of all incoming and outgoing additional cost notifications.

This enables, among other things:

• Comprehensive Documentation of all Announcements and Associated Amendments
• Real-time overview of the current change order status in the project
• Direct linkage with contract items and cost plans.
• Transparent reporting to banks, investors, and project stakeholders.
• Reduction of manual processes and Excel-based tracking

PROBIS thus addresses one of the most common weaknesses in project controlling: the fragmented, error-prone management of change orders outside central systems.

Synonyms and Related Terms

• Change Notification – often used synonymously, but rather refers to the overarching process
• Cost Overrun Notification – alternative phrasing in practice
• Change Order – the specific proposal submitted after the notification of additional costs.
• Change Order 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 – English term for the systematic management of additional claims.

The notification of additional costs is far more than a mere formality. It serves as an early warning system for budget deviations and a pivotal component of professional project management. Consistent implementation and digital administration of these notifications not only safeguard one's own negotiating position but also establish the transparency that modern construction projects demand for all stakeholders today.

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