The term ‘loss and expense’ in construction is often used to describe any additional costs that a Contractor incurs following breaches of contract by the Employer such as delay and disruption.
Most standard forms of construction contract contain loss and/or expense clauses, which provide a contractual equitable remedy for breaches of contract by the Employer, without giving such breaches that label. Each form of contract contains a claims procedure, which must be followed if a claim is to be successful. Unfortunately, construction disputes often arise because the contract has not been read properly, and the correct procedure has not been followed. Where there is no such clause, the claim can be made using common law as a remedy for damages for breach of contract.
Loss and expense claims are often associated with delays but can be for any event where the Contractor incurs loss due to the failure of the Employer, including:
- Construction delays
- Contract variations
- Suspension of work on site
- Prevention to the progress of the works such as failing to supply goods and services, or allowing access to work areas
- Default or act of the Employer and/or his consultants
Such failures can lead to the Contractor incurring claimable acceleration costs, disruption costs, head office costs, loss of profit, finance charges and additional site labour, plant and overhead costs, plus the recovery of costs for preparing a claim.
There is often a reluctance to pay
such costs and the standard of proof is higher, as actual costs linked to the
offending event must be proved. In order to increase the likelihood of a loss
and expense claim being successful, follow our tips blow:
1. Look at the Contract Terms
It is essential that if there are contract terms relating to loss and expense, especially amended terms, that these are looked at fully. If there are no contract terms you will need to make a damages claim for breach of contract, which requires specialist attention.
2. Beware of Condition Precedent Clauses
The loss and expense claim can fail for example, due to defective notices and any stipulated condition precedent, which is a clause that makes the rights under a contract clause pre-requisite on the fulfilment of a prior obligation.
It is important to identify conditions precedent within a contract, and to also understand the obligations that arise as a failure to comply that could lead to your contractual rights being diminished or lost altogether. The failure to notify in time, could result in complete loss of entitlement to claim the associated time and money.
There may be an argument depending on the circumstances of each case where such a clause might be defeated on the basis that it is non-compliant with statute or allows a benefit from the breach or unjust enrichment.
3. Keep Good Records
The burden of proof is on the Claimant, thus again it is essential that good records of actual costs are kept and their link to an offending event such as a delay. To effectively substantiate a claim, accurate records of the following are important:
- Invoices and receipt/dates of payment
- Detailed daywork records
- Signing in/site diaries
- Site measures
- Progress reports
- Photographic evidence with dates/time and location
- Labour allocation sheets, ensuring that any labour and plant time and costs wasted are detailed, specifically identifying the offending event on a daywork type sheet and importantly, submitting the same to the Employer at the time of the event, is good evidence.
If a submission made in the form of a
daywork payment application is ignored by the Employer the evidential burden of
proof shifts to the Employer, thus highlighting the importance of such
4. Liability and Quantum
Liability or Entitlement, in the case of delay and disruption, is likely to be in the form of a right to additional unforeseen expenses incurred as a result of an event occurring directly from an act or omission of the paying party that affects the regular progress of the works. Quantum is the value of that entitlement.
Standard Forms of Contract deal with Extensions of Time and Loss and Expense separately. Effectively the Standard Forms make provisions for what is at common law considered a Breach of Contract by the paying party.
A Claim at common law is a secondary right to the Contract provisions. Watch out for Contract amendments which require Notices as a condition precedent to entitlement under the Contract and Clauses that negate your common law rights.
It is a common misconception that obtaining an Extension of Time will trigger entitlement automatically to Loss and Expense. It is not uncommon for parties to argue hard on their entitlement to more time to find at the end of it they are not owed a penny.
5. Seek professional help
It is often difficult to prove the actual losses incurred and how they relate to the offending Employer or Contractor default, and it is therefore imperative that you seek a professional to determine the true entitlement of the loss and expense claim.
A detailed forensic assessment of the facts, and the legal and contractual entitlement of the parties is required in a quantum delay analysis.
If a dispute is referred to adjudication, the claim must be effectively, and properly prepared, bare sums claimed will always be met with a big black pen.
How Arbicon can Help You
Loss and Expense Claims can be a complex matter, Arbicon are experts at prosecuting and defending loss and expense claims in adjudication, our team can help you with:
- Analysis and reporting on entitlement to loss and/or expense (establish the case merits and contractual or common law rights and remedies).
- Loss recovery from delays, disruption and acceleration.
- Service of valid claims notices (form, communication of and any condition precedent).
- Compilation of contemporaneous evidence (record keeping, burden of proof).
- Mitigation of loss and "Global" claims.
- Linking cause and effect and calculation of Quantum.
- Submitting or defending a claim to ADR proceedings, if required.
If you require advice on a loss and expense claim, please use our contact form or call our offices below: