Litigation in the technology and construction court
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CHAPTER 5
Delay and disruption money claims
Introduction
5.1 Delay-related money claims could be made by either the contractor or the employer. They could also be claims under the contract (made pursuant to a specific provision) or in damages at common law, for breach. Different considerations apply to each type of claim, but one important piece of practical advice applies to both: start with the money. In order to recover the claimed sum, it will be necessary to demonstrate that (1) the losses claimed have in fact been incurred1 and (2) those losses were caused by the specific event or breach relied on. It is much easier to focus properly on those hurdles if one starts with the actual losses and works backwards to the event/breach, as further described below. Further, it cannot be over-emphasised that contemporaneous documentary evidence is essential. ‘A party to a dispute, particularly if there is an arbitration will learn three lessons (often too late) the importance of records, the importance of records and the importance of records.’2Contractor's delay-related money claims under the contract
Introduction
5.2 Most standard form contracts in use in the United Kingdom include a specific contractual provision governing the contractor’s claim for the recovery of losses not dealt with elsewhere in the contract. In other standard forms, such as FIDIC, there is no such specific clause. In that contract money claims in addition to the variation account are brought under clause 20.3Different tests for time and money
5.3 As is well known, the basis for recovery of delay-related money claims is different from the basis for recovery of an extension of time in most of the standard form contracts. In the JCT standard forms, the contractor must identify a Relevant Matter (a more restricted list than a Relevant Event) which has caused the relevant ‘loss or expense’. The contractor must prove that he would not have incurred those losses ‘but for’ the occurrence of thePage 76
Relevance of contractual provisions to valuation
5.4 Under the JCT standard forms, recovery of preliminaries associated with a particular variation can be recovered via the variations clause. Depending on which route is taken, a different basis of valuation applies:- Under the Valuation Rules applicable to variation claims, the schedule of rates/bill of quantities is used to identify an applicable contractual rate to be used.
- Under the loss and expense clause, actual cost must be proved.
Relevance of tender pricing
5.8 Tender pricing and the level of resource planned at tender will often be relevant to demonstrating that a loss has been incurred: if the contractor would always have made a loss on the project because he under-priced the job or a particular aspect of the job, or if the contractor would always have had to incur additional cost in obtaining additional resource, it may not be possible for the contractor to show that the delaying or disruptive events relied on in fact caused a financial loss. 5.9 Contractors should expect to have to disclose their internal tender pricing (or risk adverse inference being drawn) if insufficient information is available from the contract bills of quantities/contract sum analysis itself.Notice
5.10 The contract often requires notice to be given specifically for money claims (sometimes separately from time claims). Careful attention should be paid to the terms of the contract. In some cases, such as the JCT standard forms, notice is a condition precedent to making a claim.5Page 77
Contractor's critical delay-related claims
Introduction
5.11 If a project is critically delayed, one head of cost which a contractor incurs is that relating to the extended duration of the project overall. These costs include matters such as the general cost of administering a project, management-level staff, general plant and overall site facilities (such as security or office facilities). Such costs are known as prolongation costs or preliminaries (the term is taken from the first part of a traditional bill of quantities ‘where items of necessary cost are collected which do not usually become part of the finished works’).6 Sometimes, the contractor claims that as a result of events on the project, such costs have not only been prolonged, but have also been increased (for example, two project managers needed rather than one). Since the increase in such costs (as opposed to their prolonged duration) is not caused by critical delay, such claims are discussed under ‘Disruption claims’ below. 5.12 Where there is critical delay, the contractor also (in principle) incurs a loss of overheads: the reasoning goes that the contractor includes in her overall price for the work a fixed allowance for her head office costs of running the business (these are not preliminaries because they are not specifically related to the project itself), and if the project duration is prolonged, the contractor is prevented from moving on to the next project and recovering the relevant allowance on that project. 5.13 Claims for preliminaries and overheads are discussed in turn below.Preliminaries/prolongation cost claims
5.14 As set out above, preliminaries are time-related costs relating to the site overall. 5.15 The time-related costs claimed should be those which were incurred at the time the relevant critical delay was incurred, not the average costs per day or per week over the whole contract.7 This is because the overall management/plant resources tend to gradually increase and decrease on a bell curve as the project starts, is in full flow and then gets closer to completion; therefore, an overall average will not represent the actual cost caused by the relevant delay. 5.16 Further, where costs are claimed in relation to the whole site, it is essential to ensure that they really are time-related costs. In Costain v Haswell,8 the Judge was considering a claim for prolongation costs in circumstances in which the relevant critical delay event affected two buildings specifically out of ten buildings on a site. The contractor claimed the weekly general site overheads. The judge said:9. . . a claim for damages on account of delays to construction work is rather different [to a claim for an extension of time]. There, in order to recover substantial damages, the contractor needs to show what losses he has incurred as a result of the prolongation of the activity in question. Those losses will include the increased and additional costs of carrying out the delayed activity itself as well as the additional costs caused to other site activities as a result of the delaying