DELAY CLAIMS

“Remember that Time is Money1”

By Kim Franklin

Her practice includes building, civil engineering and construction related work in the
Technology and Construction Courts, arbitration and adjudication. It includes contractors
claims and fees claims by construction professionals, professional negligence claims against
architects, engineers and surveyors, disputes arising from construction projects. Her practice
includes building, civil engineering and construction related work in the Technology and
Construction Courts, arbitration and adjudication. It includes contractors claims and fees claims
by construction professionals, professional negligence claims against architects, engineers and
surveyors, disputes arising from the JCT, ICE and other standard forms of construction &
contract, insurance claims and claims relating to defective and damaged buildings.

Introduction

1. It is very difficult to consider a contractors entitlement or the operation of particular provisions of a

building contract in isolation of the philosophy behind the contract or the motivation behind the claim. I
propose to give you an outline of those essential elements so that you can read the contract on an
informed basis. There is no replacement for reading the contract.

What is a Building Contract?

Typically

2. An employer acquires a sufficient interest in land to enable him to give a contactor possession of the
site. He engages an architect who translates the employer’s wishes into detailed plans. A quantity
1
Benjamin Franklin 1748

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 surveyor measures the amount of work necessary to complete the work and sets it out in a detailed bill
of quantities. A contract is placed with a contractor. The tender and bills of quantity are sent to the
contractor with a specification, plans and conditions of contract. The contractor estimates the cost of
the work and submits a tender. If accepted a binding contract is created, often expressed in a formal
document such the JCT or ICE standard forms.

3. The works are carried out under the supervision of the architect. Interim payments are made as the
architect certifies that work of a certain value has been carried out. Payments are subject to retention,
retained until completion. After completion the contractor remains liable to make good defects which
appear during the defects liability period. When the works are completed the architect decided the
amount of money payable to the contractor in the form of a final certificate.

4. But things can and do go wrong.

a. Completion may be delayed by the ordering of variations, late or inadequate instructions,

shortage of materials or delay by subcontractors

b. The contractor may be required to carry out more work or spend more money to complete that
originally estimated.

c. A third party, injured by a falling object or annoyed by dust and noise may make a claim
against the contractor or employer

d. One or both of the parties may become bankrupt or go into liquidation.

e. A breach of contract by one of the parties may give rise to a claim by the other for damages or
bring the contract to an end.

f. After completion disputes may arise about defects.

5. A short stint of work experience with a national contracting company disabused me of any notion that
building contracts were about building things. They are about money. Employers want a quality
product built as quickly and cheaply as possible. Contractors want to be paid.

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6. I want to look at the close inter-relationship between time and money in the context of contractors
delay claims.

7. Legally, a building contract is an entire contract for the sale of goods, work and labour for a lump sum
price payable by instalments as the goods are delivered and the work done. The key elements are
scope of work, price and duration.

Contractual Completion

8. Most formal contracts provide for the date of completion and require the contractor to proceed
diligently to achieve it. If no time is specified the contractor is required to complete within a
reasonable time. A reasonable time is determined by reference to the existing circumstances but
excluding those which are under the control of the contractor. A contractor can complete within a
reasonable time, despite considerable delay, provided that the delay is caused by factors beyond his
control.

9. If the contractor fails to complete by the contractual completion date he is in breach of contract and
liable in damages. The employer can treat the contract as at end, if time is of the essence. If time is
of the essence, delay in performance of contractual obligations is treated as going to the root of the
contract, irrespective of the seriousness of the breach. The injured party may elect to terminate the
contract and recover damages.

10. Generally, it is not in an employer’s interest to determine a building contract. The consequences of
engaging alternative contractors will be time consuming and costly. The standard forms of building
contracts do not provide that time is of the essence.

Damages for Delay

11. It is not uncommon for contractors to complete the works later than the contractual date for
completion. The Employer is entitled to damages for being kept out of the building for longer than
anticipated. Such damages may be:

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 a. substantial, where the building was a large commercial venture.

b. insignificant, where the building is an extension to a family home,

c. hard to assess, where the building was non-revenue producing

12. In any event calculating general damages for delay can be a time consuming and costly business.

13. To avoid this problem parties often agree that liquidated damages, shall be payable. Typically a contract
provides that liquidated damages in the sum of £x shall be payable for each week of delay. Where there
is such a clause and the contractor fails to complete on time, the Employer is prima facie liable to claim for
liquidated damages without further enquiry. In fact an Employer is entitled to claim liquidated damages
even if he has suffered no actual loss (Clydebank Engineering and Shipbuilding Company v Castaneda
[l905] AC 6)

Liquidated Damages

14. Liquidated damages are intended to be a genuine pre-estimate of the Employer’s losses in the event
of delay. They are generally welcomed by tribunals as a workable alternative to requiring the
Employer to establish the measure of its loss and prove the quantum.

15. But liquidated damages have not always been viewed in this light. 19th Century courts viewed
liquidated damages clauses as being penalty clauses, designed to hold the contractor ‘in terrorem’ of
breach. The Courts were keen to find the liquidated damages clause inoperable and strike it down on
the slightest pre-text.

16. If the contractor was delayed by any event not expressly contemplated by the contract, and for which
the contractor was not wholly responsible, the courts found that the completion date and the liquidated
damages clause was invalid. With the result that time was at large.

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17. Against this background the extension of time clause was developed. It enabled the employer to
extend the contractor’s time for completion in circumstances where the contractor had been delayed
by circumstances beyond his control.

18. The common perception is that liquidated damages are for the benefit of the employer whereas the
extensions of time are for the benefit of the contractor. In fact, extensions of time allow the employer
to preserve their right to liquidated damages.

Exhaustive Remedy

19. Liquidated damages are particularly useful because they have been held to be an exhaustive remedy.
In Temloc Limited v Errill Properties Limited (l987) 39 BLR 30 the parties to a JCT 80 Standard Form of
Contract, stated the liquidated damages recoverable under Clause 24.2 to be "£Nil". The Employer
sought to argue that there was no liquidated damages clause and that they were entitled to claim general
damages. The Court of Appeal held that the effect of "£Nil" was that a proper construction of the contract
was that it had been agreed that there should be no damages for delayed completion.

20. Despite their convenience, contractors do seek to resist claims for liquidated damages. Defences include:

a. The agreed sum is a penalty

b. The contractual provisions do not work

c. The delay was caused by the employer

Penalty

21. In the well known case of Dunlop Ltd v New Garage Co Ltd [l9l5] AC 79 Lord Dunedin set out the test for
determining whether a sum was liquidated damages or a penalty

a. The court must find out whether the payment stipulated is in truth a penalty or liquidated
damages, irrespective of the words used by the parties.

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 b. The essence of a penalty is that it is stipulated in terrorem of the offending party whereas the
essence of liquidated damages is a genuine pre-estimate of damage.

c. The Courts consideration must take into account the circumstances which existed at the time the
contract was made and not when it was breached.

22. Various tests have been suggested to assist with the task of construction

a. If the sum is greater in amount than any conceivable loss resulting from the breach it will be held
to be a penalty.

b. The unequal financial position of the parties is irrelevant as is any question of disproportion
between the amount of the contract sum and the agreed sum payable on breach (Imperial
Tobacco Co. v Parslay [l936] 2 All ER 5l5)

c. There is a presumption that it is a penalty when a single lump sum is payable by way of
compensation on the occurrence of one or more or all of several events some of which may
occasion serious and others but trifling damage.

Laird Brothers v City of Dublin Steam Packet Company (l990) 34 ILTR 9.

d. It is no obstacle to the sum stipulated being a genuine pre-estimate of damage that the
consequences of breach are such as to make precise pre-estimation almost an impossibility.

23. Despite the development of the concept of freedom of contract during the 20th Century, the courts will still
strike down a penalty clause. The emphasis has changed, however, and now the courts are predisposed
to uphold liquidated damages clauses, particularly in the case of commercial contracts, where the job of
determining delay losses would otherwise be time consuming and complex.

24. Arguments about liquidated damages are not confined to the 19th Century. These themes were reviewed
in the 21st Century case of Alfred McAlpine Capital Projects v Tilebox Limited 25.2.05 [2005] EWHC 281:

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 a. Developers Tilebox engaged McAlpine to refurbish Onslow House, an office building in Guildford,
Surrey in October 2000

b. Contract sum was £11m

c. The contract provided for completion by July 2002

d. Liquidated damages were agreed after negotiation as £45,000

e. Things went badly wrong. Works were not completed by the contractual date.

f. Works were not complete 2 ½ years later in February 2005.

g. Tilebox claimed Liquidated damages of more than £5.4 million

h. McAlpine claimed a declaration that the liquidated damages provisions of the contract were a
penalty and unenforceable.

25. Jackson J:

a. There must be a substantial discrepancy between the level of damages stipulated in the contract
and the level of damages which is likely to be suffered before it can be said that the agreed pre-
estimate is unreasonable.

b. The test is an objective one. It does not turn on the ‘genuineness’ or ‘honesty’ of the parties.

c. The courts are predisposed to uphold contractual terms which fix the level of damages for
breach. Particularly in the case of commercial contracts freely entered into.

d. In very few cases has a liquidated damages clause been stuck down as a penalty. In each case,
there was in fact, a very wide gulf between the level of damages likely to be suffered and the
level of damages stipulated in the contract.

26. The provision was not a penalty:

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 a. On analysis Tilebox’s likely lost rental income was in the region of £45,000 a week.

b. A genuine attempt had been made to calculate the likely figure.

c. It was appropriate to use a weekly figure.

d. The liquidated damages provisions had survived scrutiny by both McAlpine and their legal
advisers before agreement.

Inoperability

27. Difficulties can arise where a single sum is stipulated for liquidated damages but the works are to be
completed in sections at different times or where the employer takes possession of part of the works
before completion of the whole. The standard forms of contract provide for one completion date only
unless the "Sectional Completion Supplement" is used.

28. Claims for liquidated damages have been held to fail where:

a. there were no effective provisions for sectional completion

b. The contractual provisions for partial possession and liquidated damages were inconsistent. In
Bramall and Ogden Limited v Sheffield City Council (l983) 29 BLR 73 the parties entered into a
JCT 63 Standard Form of Contract for the construction of l23 dwellings with only one date for
completion. They agreed that liquidated damages should be deducted at the rate of £20 per
week for each uncompleted dwelling. They also agreed that damages should be reduced upon
partial possession (Clause l6 JCT 63). The Court held that the way the liquidated damages were
dealt with did not allow for the calculation provided for in Clause l6.

c. part of a single sum was claimed for late completion of one house where the contract required
the construction of two houses but failed to provide for the apportionment of liquidated damages.
Stanor Electric v R Mansell (l988) CILL 399

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Delay Caused by Employer

29. The delay may not be attributable to the Contractor but may be caused by the Employer by e.g.

a) ordering variations which will delay completion

b) failing to give possession of the site

c) delaying in giving necessary instructions.

30. In the absence of any express power to extend time for completion for specific ‘acts of prevention’, the
Employer is in breach of contract. The time for completion is put at large and the Employer loses the right
to claim liquidated damages. Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1
BLR 111.

31. In Rapid Building v Ealing Family Housing (l984) 29 BLR 5 the Defendants were unable to give the
Contractors possession of part of the site because it was occupied by squatters. The Court of Appeal
held that failure on the part of the Defendants to remove the squatters constituted a breach of contract
and put time for completing the works at large. The contractor was obliged therefore to complete within a
reasonable time and the Defendants lost their right to claim liquidated damages. Where the claim for
liquidated damages has gone, however, the Defendants were not precluded from pursuing their
counterclaim for general or unliquidated damages.

Extensions of Time

32. In order to preserve the Employer's right to deduct liquidated damages, even though he may have caused
or contributed to some of the delay, most contracts empower the Employer to extend time for completion.
Most clauses require the contractor to give notice to the architect as soon as he becomes aware of an
event which is likely to cause delay.

33. The contractor often believes that an extension of time:

a. prevents the employer from claiming liquidated damages for the time that he has caused the
contract to over run, and

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 b. entitles the contractor to damages or compensation for being kept on site longer than agreed.

In H Fairweather & Co. Ltd v L B Wandsworth (l987) 39 BLR l06, the Court held that the sole purpose
of an extension of time is to relieve the contractor of the obligation to pay liquidated damages for the
whole or part of the overrun period.

34. There are three types of delay:

a. Delays caused by events for which the Contractor is responsible ‘Culpable Delay’ In such event:

i. the contractor is entitled to no money.

ii. the contractor is not entitled to an extension of time

iii. the contractor is liable to pay liquidated damages for the period of delay

b. Delays caused by Events for which neither Party is responsible. ‘Non culpable delay’, such as
bad weather. In such event:

i. the contractor is entitled to no money

ii. the contractor is entitled to an extension of time

iii. the employer is not entitled to any liquidated damages.

c. Delay caused by events for which the Employer is responsible. ‘Acts of Prevention’ In such event:

i. the contractor is entitled to claim loss and expense under the contract or compensation
for delay.

ii. the contractor is entitled to an extension of time

iii. the employer has no entitlement to liquidated damages

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 35. The contractual provisions relating to liquidated damages and extensions of time are inter-related and can
be summarised in this way.

a. The Employer's right to claim liquidated is preserved even though part of the delay may be
caused by events for which the Employer is responsible if the contract provides for time to be
extended should that particular event occur. But the contract is construed strictly by the courts.

b. Only if they specifically provide for the particular act of prevention or breach by the employer are
they permitted to save the liquidated damages clause. Generalised grounds for an extension of
time, such as ‘any matter beyond the control of the contractor’ have been held not to cover acts
of prevention by the employer.

c. Instead, time is put at large, the contractor has an obligation to complete within a reasonable time
and the employer is unable to recover liquidated damages.

Evaluating Extension of Time Claims

36. It is possible to write a book about the methodology used to evaluate an extension of time. Careers
have been made, and more recently, destroyed proving entitlements to extensions of time.

37. The essentials are relatively straightforward. You need to show

a. How the contractor intended to carry out the work (a programme)

b. How the contractor actually carried out the work (as built programme)

c. What elements of the work were delayed (delayed activities)

d. What events caused those delays (delaying events)

e. Who was responsible for the delaying events (Employer, Contractor, No one)

f. Whether the contract provides for the particular delaying event.

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38. Contractors often strive to force the delaying events into the contractual definition, so as to entitle
them to an extension of time. If the delaying events are the responsibility of the Employer, and the
contract does not specifically provide for them, there is no entitlement to an extension of time.
Instead, time is put at large.

39. The starting point with a delay claim is a programme. Modern construction programmes involve
detailed sophisticated software. Experienced programmers or planners are required to operate it.
The intricacies of modern extension of time claims have spawned a new breed of expert – the delay
expert.

Delay Experts

40. Debate continues as to whether delay experts are experts at all. They

a. Process all the information available about progress on site.

b. Construct a retrospective ‘as built’ programme.

c. ‘Collapse’ the delays to produce an ‘as built but for’ programme

d. Demonstrate the critical path of the programme

e. Show how works on the critical path were delayed.

41. The process is very labour intensive, time consuming and expensive. They are, however, dealing
purely with fact. The work of a delay expert is a vast edifice founded entirely on the facts of what
actually happened on site. There are two noticeable trends:

a. Delay experts lose sight of the primary objective – to show that a contractor was prevented
from completing a building contract by reason of events for which he was not responsible.
The process becomes an end it itself.

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 b. Delay experts employ vast teams to process the information, so that when they give evidence
they have an inadequate grasp of the facts upon which their analysis is based.

42. Two recent examples where delay experts were the subject of judicial criticism.

a. Skanska Construction v Egger (Barony) Ltd [2004] EWHC 1748 30.7.04

b. Eastern Hotel v John Laing Construction Ltd [2005] EWHC 181 24.2.05

43. Skanska concerned the construction of a sophisticated wood chipping plant in Scotland. The
commercial sophistication devoted to the product was not to be found during the project. The resulting
disputes have given rise to at least 5 high court actions, including two appeals. The contractors claims
included claims for extensions of time.

44. The Defendants adduced expert evidence of Keith Pickavance:

“Mr Pickavance produced a report of some hundreds of pages supported by 240 charts. It
was a work of great industry incorporating the efforts of a team of assistants in his practice. It
was evident that the report, … was largely based upon factual matters digested for Mr
Pickavance by his assistants …. There were times when the impression was created that Mr
Pickavance was not entirely familiar with the details of the report, which he signed and
presented. … There were pressures of time upon him. This and the extent of reliance upon
the untested judgment of others in selecting and characterising the data for input into the
computer programme however impeccable the logic of that programme, adversely affects the
authority of the opinion based upon such an exercise.

… It is evident that the reliability of Mr Pickavance’s sophisticated impact analysis is only as

good as the data put in. The court cannot have confidence as to the completeness and
quality of the input into this complex and rushed computer project. I preferred the evidence of
Mr Simpson as to programming and planning matters to that of Mr Pickavance.

45. The Eastern Hotel case concerned the refurbishment of the major railway hotel at Liverpool Street for
the development company by Laings as construction manager. The works were carried out by Trade
Contractors. The works were delayed by 44. The developers claimed a total of £17m in damages.
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 The erection of a temporary roof was essential to the success of the project. It was delayed by more
than 6 months. This was attributed, primarily to the scaffolding contractors failure to devote sufficient
resources. Laings accepted that there was delay but denied they were responsible for it. They
argued that much of the delay was concurrent with other delays for which they were not culpable.
They relied on the evidence of Anthony Caletka.

46. The Judge described Caletka’s approach as ‘broadbrush’, ‘naïve’ and ‘fanciful’. He concluded:

“I reject the expert evidence of Mr Caletka as to the performance of Laing as contract

manager. He has demonstrated himself to be lacking in thoroughness in his research and
unreliable by reason of his uncritical acceptance of the favourable accounts put forward by
Laings.”

47. Both cases were decided by Judge Wilcox. They demonstrate the need for a delay expert who is
thorough, hands on, user friendly, clear and sensible in their approach. If your expert speaks gobble
de gook, so that you do not understand it, there is not chance that you will be able to explain it to a
judge.

48. The problems of presenting delay claims are notorious that the Society of Construction Law formed a
working party who produced a Protocol for Delay and Disruption Claims. The Protocol is available at
www.eotprotocol.com

The SCL Protocol

49. The object of the Protocol is to provide useful guidance on some of the common issues that arise
where a party claims an extension of time or compensation for delay. It sets out various core
principles relating to delay and compensation.

a. The contractor should prepare a programme showing the manner in which the contractor
intends to carry out the works. It should be updated to record actual progress and any
extensions of time granted.

b. An extension of time relieves the contractor from the liability to pay liquidated damages. It
creates a new completion date and prevents time being at large.
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 c. Applications for extensions of time should be made as close as possible to the delaying event.
The parties should attempt to deal with the impact of Employer delays as the work proceeds.

d. It is not necessary for the delaying event actually to have caused delay for an extension to be
granted.

e. If the full extent of the delay cannot be assessed at the time an extension can be granted and
increased (but not decreased) as appropriate.

f. If the contractor has allowed ‘float’ in the programme, that is planned to finish the works
before the contractual completion date, the float should be used up before the contractor is
entitled to an extension. Thus, the Employer is entitled to the benefit of any float or ‘owns’ any
float, so far as it relates to time.

g. If the contractor planned to finish the works before the contractual completion date, and
notified the Employer accordingly, the Employer should compensate the contractor for delay
caused by the employer beyond the contractor’s planned completion date. Thus the
contractor is entitled to the benefit of any float so far at it relates to money.

h. Where contractor delay and employer delay occur concurrently, the contractor is still entitled
to an extension of time.

i. The tribunal should put themselves in the position of the parties, and the certifier, at the time
when the Employer delay occurred.

j. The contractor has a general duty to mitigate the effect of Employer’s delaying events. The
contractor is not obliged to increase resources or work outside planned hours (i.e. Accelerate
the works)

k. An extension of time does not automatically lead to entitlement to compensation.

l. If the parties agree that the contractor should undertake accelerative measures, the basis of
payment should be agreed before acceleration is commenced. Claims for ‘constructive
acceleration’ are discouraged.

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50. The SCL Protocol provides a useful framework within which to consider the various problems caused
by delay claims. The concept of concurrent delay, where both the contractor and the employer are
each responsible for competing causes of delay, especially where each event is of equal causative
potency, give rise to interesting issues of causation.

51. The SCL Protocol approach to concurrent delay is supported by two recent TCC decisions:

a. Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd [1999] 70 Con LR 32

b. Royal Brompton Hospital NHS Trust v Hammond and Ors (No.7) [2001] 76 ConLR 148.

52. In Malmaison Dyson J said:

“It is agreed that if there are two concurrent causes of delay, one of which is relevant event,
and the other is not, then the contractor is entitled to an extension of time for the period of
delay caused by the relevant event, notwithstanding the concurrent effect of the other event.
If no work is possible on site for a week not only because of exceptionally inclement weather
(a relevant event) but also because the contractor has a shortage of labour (not a relevant
event) and if the failure to work during that week is likely to delay the works beyond the
completion date by one week, then if he considers it fair and reasonable to do so, the architect
is required to grant an extension of time of one week. He cannot refuse to do so on the
grounds that the delay would have occurred in any event by reason of the shortage of labour.”

HEADS OF LOSS AND EXPENSE CLAIMS

Interrelation between Loss and Expense and Extensions of Time

53. A claim for prolongation costs or ‘loss and expense’ arises from delay in completion of the contract works
beyond the date when they would otherwise have been completed.

54. A disruption claim is one that arises from the effect of an event or series of events upon the contract works
which does not necessarily involve a delay in the completion of the works.

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55. The award of an extension of time does not go hand in hand with an award for loss and expense.
Progress can be disrupted without delaying the completion date. Thus loss and expense is dependent
upon an event or events occurring irrespective of whether an extension of time has been granted.

56. Prolongation claims are dependent upon the granting of an extension of time. Disruption claims are not.

Prolongation Costs

57. These are the costs incurred by reason of being detained on site longer than the date for completion.
There are two main heads of loss and expense that usually accompany delay:

a. The cost of maintaining on site those things that are exclusively referable to the particular
contract (‘on site costs’)

b. The cost of financing head office overheads (‘off site costs’)

On Site Costs

58. These include:

a. Preliminaries such as supervision, site huts, regular plant

b. Additional costs such as special plant.

59. The simplistic approach to calculating these costs is to ascertain the site running costs, the portakabin, the
telephone, water and electricity and site supervision and multiply a weekly figure by the number of weeks
overrun.

60. This is not necessarily an appropriate measure:

a. Items of cost in the preliminary bill, that is the first part of the bill which sets out those items which
do not form part of the finished works, are usually best estimates of the likely costs and are often
rather arbitrary.
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 b. site running costs take a downward curve as the job progresses as e.g. scaffolding, plant and
supervisory staff become redundant.

c. the true costs are those that are incurred at the time of delay and not during the period of
overrun.

d. If it is not possible to ascertain the actual costs of the delay then a more appropriate exercise is to
ascertain the running costs over the whole period of the contract works and deduct what those
running costs would have been had it not been for the delay.

61. The sums claimed should be the actual loss incurred. The period of delay is calculated from the
contractual date for completion. The Contractor can not claim prolongation costs commencing from his
programmed completion date if it is earlier than the date stated in the contract.

Overheads and Profit

62. Head office overheads can be defined as:

a. the cost incurred from the employment of staff engaged upon the contract, including contract
managers, quantity surveyors

b. as well as the costs arising from the organization generally including rates, rent and secretarial
staff.

c. Other costs including pension funds and auditors.

63. If particular head office overheads are proved to have been increased by the delay then they are
recoverable.

64. As overheads are taken to be paid for out of the income of the company as a whole, delay to completion
of one contract can cause a diminution in income and a reduction in turnover. At the same time the
contractor continues to incur expenditure on overheads which he can not reduce. Finnegan v Sheffield
City Council (l988) 43 BLR 124.

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65. In order to succeed however, the contractor would have to show that he could have obtained other work
but was unable to because his resources were tied up on the delayed site.

66. Formulae are frequently used to ascertain these costs. The most well known is Hudson's formula. This
claims for loss of profit and overheads together.

Head Office Profit % x Contract Sum x Period of Delay

l00 Contract Period (in weeks)

67. The formula evolved during the 1960’s at a time of high economic activity in construction This formula has
several drawbacks:

a. assume the existence of a favourable market where an adequate profit and fixed overhead
percentage can be earned during the delay period

b. it links head office overheads and profit and assumes that contractors always add a single
percentage to cover these items.

c. it assumes that the allowances in the tender, which are only estimates and may never be
achieved, should automatically apply.

d. It also assumes that the contractors resources will be stretched so that he will be unable to take
on work elsewhere until his working capital and site organization have been released from the
delayed contract

68. The difficulties are best illustrated by an analogy. Compare the position of a contractor with that of a river
steamer company who has hired one of its steamers to a party of revellers for a four hour trip around the
lake for £400. After some time, the revellers, who have been enjoying themselves at the steamer’s
excellent bar, demand a variation to the route which adds another hour to the trip. The contract does not
provide for the detour save to say that it should be calculated and paid for in accordance with common
law principles of damages.

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69. The formula proceeds on the basis that during the period of delay the contractors head office resources
are tied up when they could have been used profitably on another contract. This supposes that the
contractors ability to take on profitable work is limited only by the contractors resources (rather than by the
available market). If the contract cannot show that he turned away other profitable work, he cannot show
that he has suffered the Hudson formula loss.

70. The steamer operator can only recover the cost of the hire charge if he can show that he would have
been able to hire out the steamer to another party of revellers but for the detour. If not, he will be limited
to the additional cost of the detour only such as the additional diesel fuel used during the extra hour.

71. The contractor must give credit for the amount of head office overhead and profit recovery obtained
through the valuation of extra work. If the contractor is delayed by extra work, he is paid for that extra
work and the payment includes an element of overhead recovery and profit.

72. If the original party of revellers is swelling the operator’s bar profits by continuing to drink, the income is as
good as the next party waiting at the quayside.

73. The formula assumes that the relevant percentage is that used for the instant contract. Ordinary
principles of quantification of loss suggest that the right percentage is not the £100 per hour that would
have been earned from the original revellers but the amount per hour that the operator would have earned
from the next party on the quayside.

74. That concludes our exploration of the time and money continuum. Remember the distinction between
past present and future is only an illusion, however persistent. – Einstein.

Kim Franklin

December 2005

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