“Claims” – what do we mean?
In general, the term “claims” is taken as referring to
applications for financial compensation
arising out of delays and
disturbances to progress, effect of variations, contract over-runs or
prolongation, and other such events having financial implications. The principal “heads of claim”
usually include prolongation costs (ie site establishment
and staff costs, often termed “preliminaries”), head office staff and fixed overheads, additional labour costs due to disruption, increased costs of
wages and materials, and finance costs.
Philosophy – Are “claims” confrontational ?
The mere mention of the word “claims” is
guaranteed to elicit a hysterical reaction. This ought not to be the case. What the JCT, and other standard forms, do
is to legitimise a whole range of matters which otherwise would be employer’s
“breaches of contract” (eg late information, delayed possession of site
etc) by listing them as “relevant matters”, which then
entitle the contractor and/or sub-contractor to financial compensation.
This policy has not been adopted out of any
excessive concern for the contractor/sub-contractor, but merely recognises the
increasing incidence, over recent years, of acts and omissions by the employer,
which in earlier times would have entitled the contractor/sub-contractor to sue
for breach. Indeed, the increasingly
used NEC contract now places “compensation events” at the heart of the contractual
machinery.
The main clause dealing with “claims”
under DOM/1 is clause 13 (“matters affecting regular progress – direct loss
and expense – contractor’s and sub-contractor’s rights”).
Clause 13.1 sets out the sub-contractor’s obligations as to giving of notice and making of application.
Unlike extension of time, it is generally considered that the making of timely
and adequate application by the sub-contractor is a pre-condition to recovery
of loss and expense. Failure to make application, perhaps for fear of upsetting
the main contractor, will therefore
prove very costly in terms of lost entitlements. Indeed, many bespoke forms spell this out very clearly.
Clause 13.1 requires the subbie to “make written application to
the contractor” if the regular
progress of his works is “materially affected by any act, omission or
default of the contractor……or by any one of the relevant matters…”. This application must be made “as soon as
it has become, or should reasonably have become, apparent to him that the
regular progress of the sub-contract works, or any part thereof, has been or is
likely to be affected”.
The subcontractor must submit “such information in support of
his application as is reasonably necessary” to show that his regular
progress is likely to be affected. He
must then submit “such details of such loss and expense as the contractor
requests in order reasonably to enable that direct loss and expense as
aforesaid to be agreed”.
In reality, the typical main contractor will usually do all in his
power to avoid agreeing any loss and expense whatever, unless he has a clear
route through to the employer (eg major late variations by the architect
etc). This may take the form of a
tirade of counter accusations as to the sub-contractor’s alleged shortcomings.
Alternatively, he may demand “full details of cause and effect”. This is not usually because he is interested
in evaluating the claimed loss and expense, but rather in the hope that the sub-contractor
will give up in despair.
The prudent sub-contractor must submit timely and adequate
applications, and keep first class site
records, so that he is able to compile a formal claim submission and
substantiate his entitlements, both in principle and as to “quantum” (ie value
of the claim).
What is it that inspires so many sub-contractors to embark upon a
typical project in the apparent conviction that this time it will all go beautifully
to plan, when the whole of their previous experience with main contractors
surely demonstrates otherwise? We know
perfectly well what to expect on a typical project. It will over-run and there
will be disruption. The sub-contractor will need an extension of time and
compensation for his additional costs.
He should set his stall out from day one in order to protect his
entitlements. This means good site records such as a detailed site diary,
technical query sheets, confirmations of instructions, daily labour allocation
sheets etc.
Above all, if the sub-contractor wishes to recover loss and
expense, it is absolutely essential that the main contractor and/or employer is
kept fully informed at all times as to the likelihood of delay and/or extra costs. it is far more important for the
sub-contractor to submit early
application and estimate of likely loss and expense, and to get it in the
budget, than it is to submit some glossy “ripping yarn” at the end of the job.
Contract Law column – Electrical Times journal for January 2005.
Web-site: www.jrconsultant.co.uk
John Russell
Contracts and
Training Consultant
Cheshire CW4 7DP
Tel: 07770 986444
Email: swsubbie@globalnet.co.uk
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