Te mconeu _7~ ENGINEERING & LAW 2 Peay, Expense Claims: The Continuing Saga Ir, Harbans Singh KS.1 —— previous issue of The Ingenicur carried ‘A plausible explana Cf information and case law on practical aspects of this species of claims within the the absence of any author pronouncements on the local ppethaps proposing. some suitable approaches that need to be taken so as to put the grey-areas of such ing. In the process, some View of the said lacuna, the subsequent been penned with an obj Identification of Entitlements Having established the legal right to pursue a claim for direct loss and/or expense and having satisfied all the relevant procedural requirements .cumbent local guidelines or protocols relevant to this area encountered in practice include, PRACTICAL ISSUES Pitfalls and Pratfalls * Office’ Overheads; In. Constvetion ‘ot p 105,» micueewn iii ™~ He maener to) Additional Expenditure; (dh hems influenced at least partly by the volume land type of any additional work undertaken e.g tools and equipment, testing and inspection i and equipment, etc st of Preparing the Claim or contractual issues governing the same, much depends on the contractors quality of proof in terms of records, documents, ete Depending on the nature of the co disruptive element, 2 typical loss andior expense may encom fr all, or a number of the abo heads of depends upon the relative “Offsite” and “Head Office” Overheads in terms of the quality ation of the particular Depending upon the particular meaning ascribed entitlement or entitlements. Though some of the to the said phrase in the contract concerned, this head compasses the contractors subjective factors jective gonsiderations. head office and administative expenses such as office Hence, the subsequent write-up expands upon the rentals, marketing expenses, entertainment, research scope of some of the rather contentious areas of the and development costs, emoluments of head office staf, loss of profit, loss of opportunity, etc. Although it is commonly cited by #Bany a contractor as a princi nd pital. Recovery i= permitted per the applicable contractual formula or in iis absence, per the common law principles adverted Site Overheads to in the preceding sections of this paper In the final analysis, the contractor has to. show amongst This head of ‘others, that on a balance of probabilities that an act ‘of prevention by the employer has resulted in a delay which effectively denies it an opportunity to recover , an appropriate amount for these head office expenses from other sources encompasses the a “Contractors and subvcor jn having resources locked into as prolongation period, has lost an opportuni The ‘One-Off’ itemsMemeenyt _”” ENGINEERING & LAW 31 those resources on other sites where they would they are generally. recoverable as fhave eared a contribution to the costs of running 2 foreseeable cost resulting from the head office. For this argument to be successful, bs as “unabsorbed level of head office cost continues but the revenue 1.166 The three most commonly used formulae stream irom the particular contract suffering the for assessing unabsorbed head office delay shows a shortfall. f the contractor is unable overheads are the Hudson, Emden and to establish a loss of opportunity, he may be able to Fichleay. demonstrate that time and cost identified resources at head office have been incurred during the overrun 1.16.7 ‘The use of the Hudson's formula is period sc” not supported. This is because it ' is dependent on the adequacy or Therefore for the contractor to be reasonably otherwise ofthe tender in question, and successful in proving the above entitlement, it must because the calculation is derived from sonable precision and a number wsbich in itself contains an element of head office overheads and profit, so there is double counting. most contractors cannot afford. Hence, under the Circumstances, the contractor is tempted to utilize 1.16.8 Inthe. limited circumstances where 2 much more straightforward approach. i.e. one 4 head office overhead formula is to involving the use of 2 recognized formula in liew of be used, the Protocol prefers the use xnting and is atendant documentation and ‘of the Emden and Fichleay formulae the more popular of which are the Hudson However, in relation to the Fichleay . Emden Formula and the Eichleay Formula, formula, if significant proportion (more than say 10%) of the final contract Though the English Courts have accepted the use valuation i made up of the valve of of such formulae in certain circumstances ®, they are Variations, then it will be necessary to nevertheless subject to a host of shortcomings and must make an adjustment {0 the input into the formula, to take account of the fact that the variations themselves are likely fo contain a contribution to head office overheads and profit. it serves 2s 2 good starting point in the computation process. To prove that it is appropriate, evidence must be called. A mechanical insert ito the respective formulae, 1.16.9 The Contract Administrator, or, in the event of a dispute, the person deciding ust establish calculation ther because its of a partic prevented from anomalous result because of a particular resources were kept at sit elsewhere, oF the earning 2 contribution by wor actual costs ofthe head office Evaluating Contact Olin" supported by Roger Knowles 4 whichever method of the courts will require Society of Construction Delay and Disrupt Protocol 2002 which stipulates: FEmelen ov any other such formula, contacts claims should, fat all possible, be avoided 1.16.3 Unless the terms of the contract render unabsorbed overheads recoverable,SERRE ae RRO ee res ee 3 ENGINEERING & LAW emcee that it should be the date on which they incurred expenditure for which they the expenditure has been incurred. 1.15.7 The appropriate staring date will not be the same in all circumstances, but generally the starting date forthe payment Of the interest should be the earliest date ‘on which the principal sum could have become payable, which wil be the date for payment of the, certificate issued immediately after the date the Contractor applied for payment of the loss. and/or expense. This will be subject to any notice requirements in the contract. In contracts where there aretno certificates, the Protocol recommends that interest should start to run 30 days after the date the Contractor suffered the loss and/or expense’. (Claim Preparation Costs Save for the smaller and simpler claims for direct loss and/or expense, contractors expend considerable time and resous the preparation, submis and eventual resol at quite a cost, attempts to recover from the as of recent, these costs pop preparation costs” were sum Gaimable head of entitlement a separate head of entitlement Whether such claims are tenable in law is a moot point and depends the case and on the such costs; ‘The breach of any express provision in the contract, ‘mandating the ascertainment of the claim for loss andor expense by the authorized person *: ‘Whether such costs are incurred in contemplation ‘of arbitration and the arbitrator eventually awards such costs, and certify the costs may constitute an actionable breach of contract especially ifthe express provisions of the contract mandates such duty eg, Clause 24.3 7 PAM 98 Form (With Quantities Edn.) The contractors consequent entitlement under such circumstances is explained by Roger Knowles to the following effect *: “h may be argued that both parties would contemplate that if the architect ® fails to ascertain loss and expense, and hence isin breach, the partes should have contemplated that the contractor would be put to expense in preparing a fully documented Claim which should therefore be recoverable... There is 2 precedent forthe payment of managerial the case of Tate & iat the expenditure of managerial ‘an actionable wrong done 10 can properly form the subject matter of a special head of special damage.’ sSipEEEEERRERN mmc ecened7” ENGINEERING & LAW 35 able to form a considered This aigument may be extended to cover the costs jous manner. The particular of claims preparation following a breach.* by ‘ourt of Apes Equipment Ltd. y Yuasa Warwick Machinery Ltd. (formerly Warwick Mechanic Tools Ltd.) ® where Lord Justice Leggat stated: situation, the discretion“. the plains» shouldbe permite to formulate thkimately rests “sbitator who may award ther claims for damages as they wish, and not be the cost of preparing the claim covering such forced into a saighdacket of the judge’ or theit oe Sageral tne elaime consultants fees ® Wf any, opponent's choosing wn." es recoverability of -the Further guidance nt can be elicited from instant head of ela ‘The Society of Con: Protocol 2002 wai it is fully particularized and formulated such that it 1.2011 Mest construction contracts provide that meets the basic purpose of pleadings 2s underlined the contractor may only recover the cost, in British Airways Pension Trustees Ltd. v Sir Robert loss and/or expense it has actually incurred McAlpine & Sons Ltd. ™, that is “to enable the and that this be demonstrated or proved opposing party to know what case is being made in by documentary evidence. The Contractor sufficient detail to enable that party properly to answer ‘should not be ented to additional costs fort". A fundamental characteristic of such a claim is the preparation of the information, unless it age between the cause of ‘can show that it has been put to additional established, ‘cost as a result of the unreasonable actions etc. On ‘or inactions of the Contract Administrator that Is in dealing with the Contractors claim. Similarly, unreasonable actions or inactions linkage is established between the by the Contactor in prosecuting its claim cause of the alleged complaint and its effect ie. the should entile the Employer to recover its redress sought. The assessor js then left with the task costs, The Protocol may be used as a guide of unravelling the actual apportionment of the total {5 t0 what is reasonable or unreasonable.” extra costs claimed. ‘penerally favours the cont ted in establ Quite apart from the satisfaction oft ts attendant procedural req for the claim 10 be presented aims 0« “roll-up” claims36 ENGINEERING & LAW iment of the claimant. Therefor 1 The not uncommon practice of ‘contractors making composite or global claims without substantiating cause and effect is discouraged by the Protocol and rarely accepted by the courts If the Comractor has_made and ‘maintained accurgte and complete records, the contractor should be able 1142 loss and/or expense suffered, the need to make a gfbbal claim. 1.143 In what should only be rare cases fan accurate apportionment of the ‘compensation claimed cannot be made between the various causative events; then in this rae situation its acceptable 10 quantify individually those items of the claim which can be dealt with in isolation and claim compensation for the remainder as a composite whole. 1.144 The Contractor will nevertheless need t0 set out the details of the Employer Ri Events relied on and the compensation claimed with sufficient particularity so the case that cannot be avoided; renee and ‘arm-twistng’ should be avoided at this smacks of pure unprofessional professional approach need to be followed: ‘which the tendency to operate within the cocoon ‘of one’s own making will handicap the industry in future. ang, Chesire, Filoot and Furmston’s Law of in}, Battorworhs NJ. Causation and Delay In Construction Disputes it Publishing. D,, Building Convact Dictionary (4% Edn, Pobliching. Chappell, ©, Marshall, D., V P-Smith and S. Cavender Building Contract Dictionary "Edn, Blackwell Publishing.