dealing with loss and expense in construction

8/16/2019 Dealing With Loss and Expense in Construction

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Dealing with Loss and Expense

in Construction

Tony Ward FRICS, FCIOB , MCIArb


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Web Class Objectives

By the end of the Web Class you will:

Understand the Principles of Loss & Expense

Be aware of Contract Provisions

Understand Contractor’s Notices

Demonstrate awareness of Heads of Claim

Learn Top Tips for Loss & Expense

Have knowledge of calculating Head Office Overheads

Understand Procedures for Demonstrating Loss & Expense

2


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3

About You?

Using the chat facility, please

indicate which side of the

construction industry you are

from. Client,

contractoror ….?


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Loss & Expense - What is it ?

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2.

1.

1. Loss

2. Expense


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5

Loss & Expense - What do

you think it is?

Please answer in the chat facility


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Loss & Expense – Why is it paid ?

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It is paid by the client in order to put the Contractor’s cash

position back to where it would have been if the Breach of

Contract did not arise

It reimburses financial losses and expenses incurred bythe Contractor

Breach of Contract is typically an Extension of Time


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Loss & Expense – How is it calculated?

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fi nd out for cert ain


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Loss & Expense Procedures

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1

• Contractor makes application for Loss & Expense as soon as it

becomes apparent

2

• Architect instructs Quantity Surveyor to ascertain Loss & Expense

• Quantity Surveyor typically seeks further information fromContractor

3

• Contractor provides further information

• Quantity Surveyor ascertains Loss & Expense


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Top Tip – A Good Contractor’s

Notice

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The Relevant

Matter

The Cause

and Effect

Supporting

information(if available)

Reference to

documentsand records


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Top Tip – Contract Provisions

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Loss & Expense – Contract

Provisions

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Loss & Expense – Top Tip !

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When can loss and expense be ascertained?

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=aDwpdtRyKEi8cM&tbnid=jb66z8sujM1xkM:&ved=0CAUQjRw&url=http://webclipart.about.com/od/Calendar_Clip_Art/ss/2013-Calendars_4.htm&ei=ZVS4Udj-BoGn0AXwhoHoDA&bvm=bv.47810305,d.d2k&psig=AFQjCNFnmArXkNXUx7sDcBCfwSY_Z_Zj7g&ust=1371121118955635


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Loss & Expense – Heads of

Claim

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Typically Heads of Claim include :-

Site Preliminaries Prolongation

Site Preliminaries “Thickening”

Head Office Overheads

Increased Costs

• Disruption Costs

Finance ChargesSubcontractor Claims


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Loss & Expense -

Preliminaries

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Preliminaries are :-

People and facilities required to carry out the works.

Site Manager

Site Huts

Tower Crane

Temporary Electrics

Welfare Facilities

Power and Water for the Works

Site Telephones etc


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Loss & ExpenseSite Preliminaries Prolongation

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• Relates to the extended period of time that Prelims arekept on site for the delay period

For example :-

• Delay of 6 weeks =

• Site Manager x 6 weeks

• Site Huts x 6 weeks

• Welfare Labourer x 6 weeks

• Etc, etc etc……


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Loss & Expense

Site Preliminaries – “Thickening”

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This relates to extra over Prelims required on site as a result of abreach of contract by the Client

For example :-

Architect issues 100 variations for finishes in 2 week periodMajor changes

Therefore additional Site Manager brought in to manage that

process and those changes

This additional Site Manager is termed as “PrelimsThickening”


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Loss & Expense – Top Tip

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Cause & Effect Schedules are ideal for demonstrating Loss & Expense


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Loss & Expense


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Loss & ExpenseHead Office Overheads – Actual Recovery

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For this you need :-


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Loss & Expense


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Formula Approach

Emden

Hudson

Eichleay

On a scale of 1 (novice) to 10

(expert), how familiar are youwith these approaches?

Please type in the chat facility


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Loss & Expense


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Emden Formula

h x c x pd

100 cp

h = Head office percentage

c = Contract Sum

cp = Contract Period

pd = Period of Delay


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Loss & Expense


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Hudson Formula

HO/Profit% x Contract Sum x Period of Delay ( weeks )

Contract Period ( weeks )


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Loss & Expense


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Eichleay Formula

Rarely used in UK , it comes from an American legal case

involving the Eichleay Corporation


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Loss & Expense


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In order to succeed, a Contractor has to prove

there was other work available which, but for thedelay, he would have secured that work.

Top Tip

Contractor can do this by producing invitations to

tender and letters declining the tenders, as there

was not enough resources available.


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Loss & Expense – Increased Costs

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The Contractor may be entitled to increased costs

due to delays if :-

He would have purchased an item in 2010 for £10 and

then due to delays he purchased it in 2011 for £11.

Thus an increased cost of £1.

This is increased costs due to inflation

Invoices and Price lists can be used to demonstrate this


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Loss & Expense – Disruption

Costs

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• Out of sequence working• Return visits

• Trade congestion

• Disruption very difficult to prove

• Keep good records and allocation sheets

• Take photographs

• Mark up drawings showing dates of work done

• Typically recorded on daywork


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Loss & Expense – Finance

Charges

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Delays typically cause Contractor to :-

Have cash flow disrupted

Get paid later for his works

Receive retention money later

Prove cause and effect and how long Contractor is stood out of

money

Bank charges,

loss of bank interest etc.


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How can the subcontractor

prove cause and effect?

Please answer in the chat facility


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Loss & Expense – Subcontractor Claims

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Ensure subcontractor proves cause and effect

Seek copies of time sheets, wages slips, etc.

When submitting Subcontract Claim to PQS, consider anyattendances Contractor has provided …such as hoisting,

task lighting, etc….

Contractor only entitled to actual loss and expense

incurred


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Loss & Expense - Records

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L & E


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Loss & Expense -

Demonstration

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Costs EventsNarrative


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Summary

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Today we have discussed and experienced :-

Defining Loss & Expense

Contract Provisions & Relevant Matters

Cause & Effect & Schedules

Notices & their content

• Heads of Claim and formulae

Loss & Expense RecordsMethods of demonstrating Loss & Expense

A Q i ?


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Any Questions ?

Thanks for attending , if you have to

disconnect before the end of the Q&A please

take a minute to complete the survey

by clicking on the link

located in the chat facilities

dealing with loss and expense in construction

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