LECTURE 4 FORMULATION &

PRESENTATION OF MONETARY CLAIMS Recovery of Loss / Expenses /

Damages Notice of intention to claim Particular and further information

to support a claim Prolongation claims

overhead profit

Delayed release of retention Disruption and Loss of Productivity

RECOVERY OF LOSS /EXPENSES / DAMAGES

Notices for loss / expenses / damages claims are far more important to the Client than notices for EOT claims

Failure to give notice may bar or prejudice the claims

Contractor has a duty of care to the Employer to notify him the possible increase of the final cost

NOTICE OF INTENTION TO CLAIM

Similar to the EOT claim, giving notice to claim is a condition precedent to entitlement and failure to give notice of intention to claim additional payment would be barred only if:

• the specified time limit for claim should be clearly stated and

• the rights to claim additional payment would be waived if specified time limit cannot be met are specified in the conditions

PARTICULAR AND FURTHER INFORMATION TO SUPPORT

A CLAIMAfter giving proper notice of claim, the contractor may be required to submit the following particulars or information to support his claim:

• amount of loss suffered• amount of expenses incurred• records• invoices• payroll• profit & loss account• delivery schedules• …...

HEADS OF COST CLAIMS• Prolongation• Overheads• Loss of Profits• Delayed release of

retention• Disruption• Loss of productivity • Variation• Quantum Meruit• Finance Charges• Cost of preparation of

claims• Fluctuations

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Actual entitlement of the claim

Value of the claim^USUALLY

PROLONGATION CLAIM

D1 Example D2 Example Prolongation cost late A.I. X - entitled

X - late A.I. entitled *X inclement X - not entitled

weather = qualifying / relevant for loss / expenseX = not qualifying / relevant for loss / expense* = for only individual activity

D1

D2

SITE OVERHEADS / PRELIMINARIES

Date for completion

Date of completion

Actual

Original

Overheads

Prolongation claim

EOT claim

Time

OVERALL CLAIMInaccuracies Extra cost caused by • Contractor's fault• Neutral's fault• Different cost at different timing

The contractor should demonstrate the periods

• when each time related resources was on site and

• when they ought to have been on site

PROLONGATION OF INDIVIDUAL ACTIVITIES

If non-critical, e.g. scaffolding, activity is delayed by a qualifying event, time-related cost for the scaffolding for the delayed period is recoverable

Is time-related cost recoverable for the delay of a non-critical activity caused by a qualifying event ?

PRINCIPLES FOR CLAIMING EXTRA PRELIMINARIES

• Cost recovered <= Tender's assumption < Actual cost

• Cost recovered <= Actual cost < Tender's assumption

• If delay by variation only, cost recovered based on contract bills

• If delay by late instructions, i.e. breaches of contract damagescost recovered based on actual cost

• If delay by mixed reasonscost recovered probably based on actual costs

HEAD OFFICE OVERHEADS• Hudson's formula

Overhead to be recovered = Head office overhead (%) in contractor's tender x Contract Sum Contract period x Period of delay

• Emden's formulaOverhead to be recovered=Total Overhead cost total turnover x

Contract Sum Contract period x Period of delay

(N.B. total overhead cost those allowed in the contract

• Eichleay's formula (Popular in U.S.A. only)

ADJUSTMENT FORMULA• By a factor F

=Value of work done per day during period of delay on contract / Average value of work done per day during total contract period

• By monthly records of workdoneTotal head office overheads for delayed month / total cost of all projects x Cost of delayed project x no. of days delayed / no. of days in the delayed month

• By other reasonable methods

LOSS OF PROFITS• Some contractual provisions only provide for

recovery of additional cost (not loss) or expense• However, contractor may claim loss of profit, for

such contracts, under the general law - common law claim

• Formulae used in calculation of recoverable overheads are also applicable in the calculation of recoverable loss of profits

• Records of the following should be kept:No. of all tenders submittedNo. of tenders awarded (success ratio)No. of tenders contractor invited to tenderNo. of tenders declined / submitted

deliberately high tender price

O/H & P IN VARIATIONS & PROLONGATION

• Recovery of overhead & profit in variations should be deducted from the overhead & profit in the prolongation claims

• Variation not causing the delay of the prolongation - not need to adjust

• Variation causing the delay of the prolongation - adjustment is required. Otherwise overhead & profit would be double counted

MONETARY CLAIMS IN CONCURRENT DELAYS

• Non-recoverable delay on the critical path, recoverable delay on the non-critical path no reimbursement

• Non-recoverable delay on the non-critical path, recoverable delay on the critical path

reimbursement permitted• Both (recoverable & non-recoverable) delays

are on the critical path with same durationno reimbursement

• Recoverable delay occurs first, followed by a non-recoverable delay (both critical)seems reimbursable

• Non-recoverable delay occurs first, followed by a recoverable delay (both critical)seems non-reimbursable

DELAYED RELEASE OF RETENTION

• If the project is delayed by the Architect, the completion date and hence the date for release of the retention will have to be delayed.

•The main contractor has a right to recover the finance charges incurred or the interests loss.

DISRUPTION AND LOSS OF PRODUCTIVITY

• Not comparing the actual productivity & the allowance in the tender - due to tender errors, changed method of construction, etc.

• Compare the actual productivity during a period of disruption with the productivity during a period without disruption (i.e. the productivity which ought to have been achieved by the proposed method & sequence in case of no disruption)

• Normally it is measured as the output per manday (i.e. $/manday)

• It is recommended to record the productivity beforeduringafter the disruption

LOSS & EXPENSELoss is associated with profit attracted to the work undertaken

Expense is the cost of the work • Financial loss of the Contractor does not

automatically provides the substance for a contractual claims,

• A claim can only succeed when there are relevant clauses in the Conditions of contract.

• Principles of the actual entitlement and value of the claim (Actual entitlement < Value of the claim)

• Global claims (total costs from rolling numerous claims together) ,though are admitted, are risky to the client.

LOSS & EXPENSE IN HKIAClauses 24(1) of HKIA permits the Architect to pay the Contractor for 'loss & expense; provided that :-

• the Contractor has made written application, and• the application is made within a reasonable time

of the delay becoming apparent, and• the Architect is of the opinion that the Contractor

has been involved in direct loss and/or expense by reason of interruption of the regular progress of the Works for any of the causes specified in paragraphs (a) to (e) of sub-clause (1), and

• the contractor would not be reimbursed for such loss and/or expense by a payment made under any other provision of the contract.

NO DUPLICATION OF REIMBURSEMENT

Reimbursement under Clause 24(1) is subject to it not being reimbursed by a payment made under any other provision in the Contract.In the main contract, the potential area of duplication will occur either through payments made in accordance with

• Clause 11(4) - valuation of variations• Clause 11(6) - claims for direct loss and

/or expenses due to variations• Clause 31 - payments for fluctuations

DIRECTNESS OF LOSSESThe loss and/or expense must be direct. The general rule is that certain losses which are too 'remote' are not recoverable.

In the case Hadley v. Baxendale (1854), the word 'direct' was considered as

either arising naturally, i.e. according to the usual course of things.

Orsuch as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract.

LOSS / EXPENSE & EOT

Certain matters, under clause 23- extension of time, can afford grounds for an extension of time; for financial compensation in addition to justifying an extension of time are matters which, of their nature, tend to be under the control of the Employer or his Architect. These matters are illustrated in paragraph (a) to (e) of sub-clause (1) of Clause 24

IMPLIED TERMS FOR L&EApart from the expressed terms, there are also breaches of implied terms of the Contract on the part of the Employer. The following relevant implied terms may be said to be contained in the contract, provided they do not contradict with any expressed provision in the contract :-

• The Employer will, through the Architect, supply such drawings and issue such instructions at such time or times as will reasonably permit the Contractor to plan and execute the Works in an orderly and regular manner.

• The Employer will not interfere with the progress of the Works.

• The nominated sub-contractors and supplier will be nominated at reasonable times.

WITHOUT PREJUDICE TO RIGHTS OTHER THAN L&E

If a breach is involved, the Contractor's right to claim damages is preserved by this provision. Sub-clause (2) of Clause 24 makes it clear that the provisions of sub-clause (1) are without prejudice to any other rights & remedies the Main Contractor may possess. (e.g. right to determine the contract, other common law rights)