Most forms of sub-contract, whether standard or bespoke, allow
for reimbursement of direct loss and
expense. Where such reference is absent, then the claimant still has his rights
under common law.
The JCT standard forms provide for “act,
omission or default” of the main contractor and/or his sub-contractors (eg lack of access etc). Then there are the “relevant matters”, typically as follows : late
instructions and/or information,
discrepancy or divergence between the contract drawings and/or the
contract bills and/or the numbered documents, execution of work by the end
client and/or persons employed or engaged by him and/or failure to do so,
supply of materials by the end client or the failure to do so, architect’s
instructions to postpone any works,
failure by end client to give access to or ingress from the site,
architect’s instructions (variations) , variance from approximate quantities
given in the bills.
“Neutral” events such as exceptionally
adverse weather, force majeure, strikes, specified perils, delay by statutory authorities do not
qualify for loss and expense. Most JCT
forms specifically retain the rights of the parties to damages under
common law, in addition to direct loss and expense under the sub-contract. Text books generally recognise that the
definition of direct loss and expense is the equivalent to damages, and that
the “balance of probabilities” applies.
It is generally considered that the giving of timely and
adequate notice by the sub-contractor is a condition precedent to recovery of
loss and expense. The prudent
sub-contractor will keep good site records, so that he is able to meet and
overcome these challenges.
The principal heads of claim are usually as follows :
Site
preliminaries
This head of claim arises due to prolongation of the on site period
(ie delayed completion) and includes time related costs such as site
supervisors, engineers, clerks, surveyors, charge-hands, storekeepers, welfare
men, site accommodation, telephones, fax machines, photo copiers, plant,
scaffold and equipment etc. Most text
books state that the sums claimed
should be actual costs, rather than an extract from the tender. It is not
necessarily correct to assess the costs actually occurring during the calendar
period of over run. It may be more
appropriate to take the actual costs incurred during the periods when the delays occurred.
Head office overheads
There may be specific personnel at head office whom it is
reasonable to include in the time related costs of prolongation (eg contracts
managers, senior surveyors etc). These
are sometimes referred to as project overheads. As to the general overheads, there are two possible approaches.
The less contentious is to add an overall percentage to the net total of the
claim. Much more difficult to sustain
is a formula approach such as the
Hudson formula or the Emden formula. In
simplest terms, the formula is as follows :
H/100 x c/cp x pd where H = head
office percentage from tender (Hudson) or company accounts (Emden), c = contract sum, cp = original contract
period, and pd = period of delay.
Loss of profit
This is a valid claim in principle, but subject to very similar
criteria and difficulties as those of overheads
Disruption and loss of
productivity
“Global claims” (ie total cost minus
actual recovery) are frowned upon. However, it may be possible to demonstrate
that the tendered norms were achieved on a good area (ie one with minimal
disruption) and then to compare with the productivity on a bad area (ie an area
where disruption can be proven).
Alternatively, it may be possible to analyse the performance on each
programme activity (ie planned versus actual labour usage, and incidence of
disruptive events). The sub-contractor’s best hope rests with good site
records.
Increased costs (fluctuations)
due to fixed price shift
On a fixed price job, a prolonged delay will move part of the
expenditure into a period of higher inflation (eg wage increases and/or
materials price rises). This may be calculated
by tabulating full details of each operative and invoice etc. Alternatively, it
may be possible to assess the additional costs by reference to trade indices.
Finance charges
Finance charges will usually
be claimable. These charges will be incurred either by increase in
bank overdraft or by loss of interest on deposit account. They
are usually calculated on a compound
basis at 2% above bank lending rate.
Costs of preparing claims
These costs will not usually be recoverable, unless the parties are
in an arbitration scenario.
Practical advice
One cannot over emphasise the importance of early notice, good
records and early forecasts of loss and expense. In short, the aim must be to “get your claim in the client’s
budget”.
John Russell
Construction Contracts & Training
Consultants (Established 1984)
Cheshire CW4 7DP Tel : 07770 986444
Email :
swsubbie@globalnet.co.uk Website:
www.jrconsultant.co.uk