Unit 10: Contract Administration: Loss and Expense D39PZ: - - PowerPoint PPT Presentation

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...last week (or things you should now understand)

• the difference between the Date for Completion and the

Completion Date

• the SBC/Q process by which the Date for Completion /

Completion Date can be changed (i.e. “Adjustment of the Completion Date”) to award an “extension of time.”

• the situations under which an extension of time would be

granted

• the nature and contractual purpose of Relevant Events
• the nature and purpose of Liquidated Damages

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Unit 10: Contract Administration: Loss and Expense

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D39PZ: Procurement and Contracts

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Claims for loss and/or expense

Claim submission procedure Claim assessment procedure “Heads of Claims”

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“Claims?”

SBC/Q does not accommodate “claims”

• ther than insurance claims*

Application for payment of Loss and Expense (cl. 4.23)

SBC/Q allows the Contractor to make an application for payment

• f loss and/or expense
• cl. 1.10.1 (Effect of FInal Certificate) does mention “claims” - it shouldn’t

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In practice: “Claim” = Application for payment of Loss and Expense

• We will adopt industry use of the word “claim” to represent

an application by the Contractor for payment of Loss and/or Expense.

• Note that a “claim” relates to money only - not time.

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Claims for loss and expense

Claims:

• are submitted to the Employer by the Contractor
• are requests for additional payment due to:
• the Employer’s non-material breach of the Contract due to:
• action (or inaction) of the Employer (or its agents)
• action (or inaction) of parties brought to the project by the

Employer

• are the Contractor’s request(s) for payment of loss and

expense it did not expect to encounter.

• are often associated with delays or variations

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Claims for loss and expense

• Claims may arise for several reasons, including:
• delays and extensions of time
• disruption caused by the Employer or it’s agents
• variations to the Contract
• changes to the nature of the project
• Overall, claims arise when the Contractor is required to

perform work (or perform work using a method) that was not anticipated when the Contract was agreed.

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Claims for loss and expense

• Claims are often viewed negatively - this should not be the

case.

• If the Contractor has genuinely incurred loss and/or expense

due to the Employer’s actions, then they should be able to recover these costs.

• SBC/Q gives the Contractor the right to recover these costs.
• Contractors are fully entitled to submit claims, provided

that:

• they are not spurious
• they are submitted in accordance with the requirements of

SBC/Q.

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Claims principles

• Claims are a form of damages, but it is important to note:
• Liquidated damages (for example):
• The Contractor compensates the Employer to cover the Employer’s

costs incurred due to late completion.

• The Contractor is in non-material breach.
• Claims for loss and expense:
• The Employer compensates the Contractor to cover the

Contractor’s unexpected costs incurred due to the Employer’s actions (or inactions).

• The Employer is in non-material breach.

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Claims principles

• The process by which the Contractor must submit a claim

for loss and expense is defined by cls. 4.23 to 4.26.

• Although the Contract makes the submission of a claim possible, the

Contractor's right to adjudication and litigation still remains (cl. 4.26).

• The Contractor’s right to submit a claim arises from the

Employer’s non-material breach of the Contract.

• The Employer will settle the claim by paying damages to the Contractor to

return it to the position it would have been in had the Employer’s breach not occurred.

• In other words, the Contractor’s unexpected costs will be paid by the

Employer.

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Claims principles

• The Contractor cannot claim for loss and expense arising

from:

• its own actions; or
• events that could not be foreseen by either party.
• Recall that many Relevant Events justifying an extension of time cannot be foreseen

(and cannot, therefore, be mitigated by either party).

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Extension of time vs. Loss and expense

• There is no direct link between extensions of time and

claims for loss and expense

• Extensions of time:
• Granted if a Relevant Event occurs that requires the Contractor to be

given more time to complete the Works.

• Loss and Expense:
• Claims for payment are made by the Contractor to recover unexpected

loss or additional expenditure due to delay or disruption caused by others.

• An extension of time does not always justify a claim.

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Types of claim

• Contractual claims
• Follow the procedures defined by the Contract
• Usually settled quickly and simply
• Common law claims
• Result from breaches of implied Contract terms
• Can be recovered using the Contract or litigation
• Quantum meruit claims
• If no prior agreement of cost
• Ex gratia claims

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Limitations on entitlement

• Contractors can only claim for:
• Loss and/or expense arising from a Relevant Matter
• Note: Relevant Matters ≠ Relevant Events
• Loss and/or expense which cannot be recovered by other

contractual means (cl. 4.23).

• Costs incurred by the Contractor when working in a reasonable

manner.

• The Contractor must have taken all reasonable steps to avoid

additional costs.

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Relevant Matters vs. Relevant Events

• Relevant Events justify additional time
• Relevant Matters justify additional payment
• Relevant Events include uncontrollable circumstances.

Relevant Matters do not

• The Contractor cannot be expected to recover costs from the Employer

caused by an event that neither party could control

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Relevant Matters

• Cl. 4.24 defines the Relevant Matters as:

Relevant Matter Clause number Variations

• cl. 4.24.1

Postponement of the Works or instruction to spend an undefined Provisional Sum

• cl. 4.24.2.1

Inspection of the Works

• cl. 4.24.2.2

Contradictions in the Contract Documents

• cl. 4.24.2.3

Dealing with antiquities found on site

• cl. 4.24.3

Inaccurate Approximate Quantities

• cl. 4.24.4

Action (or inaction) of the Employer

• r it’s agents
• cl. 4.24.5

Relevant Events Caused by? Relevant Matters

2.29 .1 Variations Employer 4.24 .1 Variations .2 CA's instructions to: .2 CA's instructions to: .2 .1 correct a discrepancy in the Contract Documents (cl. 2.15); Employer .2 .3 correct a discrepancy in the Contract Documents (cl. 2.15) .2 .1 postpone part of the Works (cl. 3.15); Employer 2 .1 postpone part of the Works (cl. 3.15); .2 .1 execute work represented by an undefined Provisional Sum (cl. 3.16); Employer .2 .1 execute work represented by an undefined Provisional Sum (cl. 3.16); .2 .1 completing works that would have been under a Schedule 2 Quotation had the Contractor not

• bjected to it being so (cl. 5.3.2)

Contractor .2 .2 opening up of works for inspection if work found to be in accordance Employer .2 .2 opening up of works for inspection if work found to be in accordance .3 deferment of possession of the site Employer .4 discovery of antiquities on the site (cls. 3.22.1, 3.22.2) Neither .3 discovery of antiquities on the site (cls. 3.22.1, 3.22.2) .5 execution of work described by an inaccurate Approximate Quantity Employer .4 execution of work described by an inaccurate Approximate Quantity .6 suspension of the Works by the Contractor due to non-payment Employer .7 actions or inactions of anyone employed by the Employer Employer .5 actions or inactions of anyone employed by the Employer .8 actions of a Statutory Undertaker Neither .9 exceptionally adverse weather conditions Neither .10 loss or damage caused by a Specified Peril Neither .11 civil commotion, terrorism Neither .12 strike Neither .13 a change in Statute directly affecting the Works Neither .14 force majeure Neither

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Claims for loss and/or expense

Claim submission procedure

Claim assessment procedure “Heads of Claims”

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Claim submission procedure

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Claim submission procedure

• Procedure is defined by cl. 4.23
• Contractors must:
• Submit all claims in writing as soon as the Contractor becomes aware that

“regular progress has been or is likely to be affected” (cl. 4.23.1)

• Submit full documentation of the sources of the costs claimed (cl. 4.23.2)
• Provide additional information if requested by the CA or QS to value the

amount of damages due (cl. 4.23.3)

• Submit claims to the CA rather than the QS

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Supporting a claim

• The Contractor must support every claim with full and

detailed records, including:

• relevant Contract Documents;
• references to relevant contract conditions
• master programme
• the Contractor’s own routine records
• including the Clerk of Works’ certification of their accuracy (but not

their validity)

• the Contractor’s additional records specific to the claim

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Claims for loss and/or expense Claim submission procedure

Claim assessment procedure

“Heads of Claims”

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Claim assessment procedure

• After submission, a two-step process ensures the

magnitude of a claim does not affect its validity

• Validity is determined before magnitude (quantum) is considered.
• Step 1: Determination of validity
• Validity of the claim is determined by the CA
• A claim is valid if the loss and/or expense is caused by a

Relevant Matter

• The amount of the claim is not considered

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Claim assessment procedure

• Step 2: Determination of quantum
• After validity is established, the amount of damages the Employer must

pay is ascertained

• Usually assessed by the QS on the CA’s behalf
• QS must take an impartial view

Amount of damages = QS’s ascertainment of the reasonable cost of completing the Works in disrupted or delayed circumstances

• The cost of

completing the Works included in the Contract Sum

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Claims for loss and/or expense Claim submission procedure Claim assessment procedure

“Heads of Claims”

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The “Heads of Claim”

• The documentation submitted by the Contractor to support

a claim is called the “Heads of Claim”

• See example provided
• The Heads of Claim must clearly state the loss and/or

expense arising due to each Relevant Matter.

• “Global” claims will only be accepted if costs cannot be isolated.

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The “Heads of Claim”

• The Heads of Claim must document:
• Additional preliminaries costs
• Reduced labour productivity
• Extra waste or unused materials
• Increase in the cost of resources (e.g. inflation)
• Extra head office overheads and profit required
• Additional finance charges
• Correspondence, site meeting, photographs, etc.

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The “Heads of Claim”

• Head office overheads & profit
• A formula was

traditionally used to calculate these indirect costs.

• Case law now

discredits this approach.

• It was held that

“ascertain” means “to find out for certain.”

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The “client’s QS” and claims

• The client’s QS becomes involved in the settlement of a

claim when instructed by the CA to ascertain its quantum.

• This raises issues of bias, given the QS’s employment by

the Employer.

• In the pre-contract phase, the client’s QS must act solely

in the Employer’s interests.

• In the post-contract phase, the client’s QS must perform

the duties prescribed in the Contract.

• The client’s QS has duties to the Employer and the Contractor.

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The “client’s QS” and claims

• When asked to ascertain the quantum of a claim, the

client’s QS:

• is duty-bound to find out the actual loss and/or expense incurred by the

Contractor due to the Relevant Matter

• has a duty to ensure the Contractor is paid no less than it is due.
• In practice, “ascertaining” the quantum of the claim is a

balance between valuation and negotiation.

• It can, and often does, lead to disputes.

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Remember to read the full Unit notes and Appendices, and complete your independent study