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Loss & Expense (L&E)

principles

Anand ANTHONY 安杰褔<[email protected]> [M: 9693 0407]

CHARTERED BUILDING ENGINEER (UK), Adjudicator (Malaysia), Mediator (UK)

EXPERT in FORENSIC PLANNING (Delay/Disruption/Production/Acceleration)

EXPERT in COST ENGINEERING (Quantum of Costs/Loss/Expense/Damages)

EXPERT in PRODUCTIVITY ANALYSIS (Production capacity, Optimum manpower)

Education

• Master of Laws (Commercial & Corporate) LL.M London

• Master of Science (International construction Management) M.Sc. NTU S’pore

• Bachelor of Laws LL.B (Hons) London

• Bachelor of Engineering B.Eng. (Civil) NU S’pore

Working Experience

• 27 years of leadership and management in the construction industry

• 19 years as Construction Contracts Commercial Consultant

• 19 years lecturing in the areas of law, management, business, finance & insurance

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Loss & Expense

Claims

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Loss & Expense Claims arise due to: -

• Delays & EOT

• Changes to the nature of the project

• Disruptions caused by the Employer and/or its agents

• Variations to the contract

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Types of Variation Order (VO) Claims (claims

for Works ordered/instructed in writing in

accordance with the contract provisions)

• “True” variations to the contract

• Additional Works required for the project

• New Scope of Works

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“True” variations to the contract

• Often changes to quantity and/or quality and/or

methods to be adopted

• Often within the contract contemplation

• Use of contract terms and rates

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Variations, in general, for Construction Contracts

come under two(2) broad categories:

Category 1: Variation/Change in Contract Documents

These include: changes to designs / drawings / specifications etc.

Category 2: Variation/Change to Working Conditions

These include: changes to working hours / working methods / sequence of working / acceleration of works etc.

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Additional Scope of Works

• Often changes necessary to complete the

project

• Often outside the contract contemplation

• Use of contract terms and rates, only if

provided for if not new terms and rates to apply

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New Scope of Works

• Changes by Employer

• Outside the contract contemplation

• New terms and rates to apply

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“………. the Contractor undertakes to do the work for a definite sum and he takes the risk of the cost being greater or less than he

expected.”

-Lord Reid’s judgement in

- Davis Contractors Ltd v Fareham Urban District Council [1956] (House of Lords) (U.K.)

Introduction to Claims

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Client’s goalsAll Clients have finite resources

They must balance competing goals

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Contractor’s goals

All Contractors have finite resources

They must balance competing goals

We need

longer time

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Quality v Cost v Time

The risk drivers for the two parties to a construction project are often directly conflicting. Thus, a contract is an attempt to distribute the risk and clearly identify who owns what risk

In the diagram:

if you reduce the time of the project then the cost will go up and the quality will go down.

If you increase the quality then the cost and time are likely to increase.

In any event it is likely that only 2 of the 3 can ever be controlled at the same time.

The contract therefore is a balancing mechanism between the three and if the contract is unbalanced there will be impacts between the three factors.

TimeCost

Quality

Three factors constrain every project.You control two, and only two

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Delay & Acceleration to Cost-Time

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Examples of problem projects

Time and cost overruns in key public sector projects (UK):

Wembley Stadium £757m £1bn 4 years

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Types of Claims

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What are claims?

Claims:

are made by the Contractor to the Employer

are requests for additional payment due to:

• 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

• unforeseen circumstances

are often associated with delays or variations

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Time & Cost Claims

Time & Cost Claims:

claims that result in an addition to the TIME available for

completion of the Works

claims that result in the payment of money (COSTS) from one party

to another

Claims are submitted in accordance with

procedures defined by the Contract

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Establishing “Causes” of Claims

It may not be possible to keep to the Time and Costs as agreed in the Contract due to:

Delays/Changes caused by the Contractor (or its Sub-contractors)

Delays/Changes caused by the Employer (or its Agents)

Delays/Changes caused by events which neither the Contractor or Employer can control [These are “Neutral Events”]

The contract defines how to manage Time and Costs when/if these events occur

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Type of Claims

Delay and Extension of Time (EOT) Claims

Disruption & Loss of Productivity Claims

Prolongation Claims

Acceleration Claims

Variation / Change Order Claims

(General) Loss & Expense Claims

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Delay(the management of time)

&

Disruption(the management of productivity)

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Delay may be either: -

Delay to Progress or Delay to Completion

Delay to progress; delay which affects progress but does not cause the completion date, whether planned or contractual, to change

Delay to completion; delay which affects progress and causes the completion date to change

EOT = Delay to Completion

Delay to Progress vs.

Delay to Completion

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Disruption may be described as “Disturbance, hindrance or interruption of a Contractor’s normal work progress, resulting in lower efficiency or lower productivity than would otherwise be achieved”

- SCL Delay and Disruption Protocol

Disruption

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Disruption is not necessarily a consequence of delay and neither is

delay to completion a necessary consequence of disruption, although delay

to progress is

Disruption

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What is disruption?

It is when work cannot be carried out in a logical, planned and efficient way.

It is when trades end up out of sequence, working in the same area, tripping over each other and being less efficient than normal.

Put simply, disruption is when there is a loss of productivity.

Source: Andrew Hemsley 2007 issue 18

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Delay and disruption impact (in different ways) on the two general areas of a contractor’s operations: -

(1) The execution of the work required by the contract – often referred to as the measured works in more traditional contract arrangements

(2) The contractor’s administrative and enabling processes relating to the execution of the work – what may be termed Preliminary and General Items (Prelims)

Delay & Disruption Impact

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Extensions of Time: Principles

It may not be possible to keep to the dates agreed in the

Contract due to:

Delays caused by the Contractor

Delays caused by the Employer (or its Agents)

Delays caused by events which neither the Contractor or Employer

can control

• These are “Neutral Events”

The contract defines how to manage time if these events occur

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Loss caused by delay or disruption

The prevention principle stops a party benefiting from its

own breach of contract

For example, if the Employer’s actions (or inactions) prevent the

Contractor completing the Works by the agreed Date for

Completion, the Contractor cannot be expected to pay damages

to the Employer for late completion.

In this situation, time becomes “at large” and the Contractor must

complete within a reasonable time.

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The Contractor’s obligation to complete the

works within the time stipulated in the contract

operates on the premise that the Employer

does not do anything which has the effect of

impeding the Contractor’s progress.

A breach of this by the Employer constitutes an

“act of prevention”.

Obligations of the Parties

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The Contractor’s liability for Liquidated Damages

The Contractor’s Claim against the Employer

The fact that extensions of time are granted on account ofdelays attributable to some act of prevention by theEmployer may afford a basis for a claim by the Contractoragainst the Employer for time related damages anddisruption losses

Significance of EOT

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Notice Of Delay (by the Contractor) being

“Condition Precedent” to the Architect’s or

Superintending Officer’s (SO’s) or

Engineer’s granting of Extension Of Time

(EOT) to the Contractor

The Courts do not always take strict positions

of these notice requirements

Notice being “Condition Precedent”

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An act of prevention operates to prevent, impede or otherwise

make it more difficult for a Contractor to complete the works by

the date stipulated in the contract. It includes any breach of

contract by the Employer as where the Employer interferes

improperly through the agent in the carrying out of the works or

where he fails to give timely possession of site.

The expression “act of prevention” is also frequently taken to

extend to acts which are, in fact, authorised or at least fall

within the range of events contemplated by the contract, such

as the ordering of extra works or a failure on the part of the

Employer’s Consultants to provide plans and drawings

expeditiously.

Effects of Employer’s Act of Prevention

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The legal consequence of an act of prevention is

that the date for completion originally stipulated in

the contract ceases to be the operating date for the

completion of the works.

Effects of Employer’s Acts of Prevention

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Unless an extension of time provision exists

which can substitute a new date for completion for

the original completion date, the principle is that

there is no longer a date from which liquidated

damages can run and the Employer thereby loses

his right to enforce the liquidated damages

provisions i.e. this operated to set time at large

and to render inoperative the liquidated

damages clause of the contract.

Effects of Employer’s Acts of Prevention

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A delay on the part of the Employer’s Engineer or

Architect in approving drawings or in making critical

decisions which affect the progress of the works can

constitute an act of prevention by the Employer.

There is little difficulty in reading into the time

extension provisions of the major standard forms as to

the power to fix a new completion date on account of

these contingencies

Effects of Late Design/Drawings approvals

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The question which then arises is whether the Contractor

can allege that the Architect or Engineer or Superintending

Officer (SO) had failed to discharge his duty to administer

the contract fairly by virtue of the fact that he had failed to

certify the extension of time (EOT) claims within a

reasonable time from the date of the Contractor’s

application for extension.

Acceleration of Works when EOT

Claims have not been Settled

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This in turn determines whether the

Contractor is entitled to proceed against the

Employer on an acceleration claim.

This position is well established in the United

States of America (USA).



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In Norair Engineering Corporation v United States [1981]

(USA), the Employer was a United States government

agency.

The court ruled that an order to accelerate the progress of

the works might be formulated in the form of a request and

need not be couched in the form of mandatory instruction. It

held that, on the evidence, the Contractor was led to

accelerate the works beyond the level which the Contractor

considered was the proper rate of progress in order to avoid

any potential liability for liquidated damages, and that,

accordingly, the Contractor in this case was entitled to recover

his acceleration costs

Acceleration when EOT Claims have not been Settled

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USA LAW – CONSTRUCTIVE ACCELERATION

Appeal of Continental Heller Corp [1984] (USA, General Service Board of Contract Appeal [GSBCA]).

The General Service Board of Contract Appeal held for the Contractor finding the following facts as elements which together constituted a constructive acceleration, namely that:-

(1) the Contractor had encountered an excusable delay;

(2) the Contractor had requested for an extension of time (EOT);

(3) the Government refused to grant the extension of time (EOT);

(4) the Government required the Contractor to complete the work within the original performance period;

(5) the Contractor whereupon gave notice of acceleration; AND

(6) the Contractor actually did incur additional costs by accelerating performance.

Acceleration when EOT Claims have not been Settled

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ACCELERATION CLAIMS & CONSTRUCTIVE ACCELERATION CLAIMS – UK LAW

According to “Constructive Acceleration” by Russel W. Wray of Wray & Pierce, L.L.P,case law has identified five(5) elements normally required to establish a claim forconstructive acceleration.

Those five(5) elements are as follows: -(i) An excusable delay must exist;(ii) Timely notice of the delay and a proper request for a time extension must have

beengiven;

(iii) The time extension must have been postponed or refused;(iv) The owner must have ordered (either by coercion, direction or some other manner)

the project completed within its original performance period; and(v) The contractor must actually accelerate its performance, thereby incurring excess

costs.

Excusable delay, by Russel W. Wray of Wray & Pierce, L.L.P, means that the contractoris entitled to an extension of time under the contract.

http://pview.findlaw.com/view/1855854_1?channel=CCC




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According to “Acceleration” by Daniel Atkinson of Atkinson Law, London, UK, thepossible acceleration measures are in summary, as follows: -(i) Increased resources to reduce the time taken for critical activities. The

increase in resource may at some level have the effect of reducingproductivity and thereby increasing unit cost of construction. There willnormally be an optimum level of resource for any one activity.

(ii) Increased man hours is a means of increasing resource input, but willintroduce inefficiency and both quality and health and safety issues.

(iii) Incentives will motivate labour to increased productivity.(iv) Changed method of working may open up additional workforces or

workplaces as well as introducing economies in the use of plant andequipment.

(v) Resequencing work is a fundamental part of managing the progress of thework and is why float is always required on most of the activities on a project.

ACCELERATION CLAIMS & CONSTRUCTIVE ACCELERATION CLAIMS – UK LAW

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There may be more substance to an

acceleration claim arising from a

Superintending Officer’s or an Engineer’s or an

Architect’s refusal to grant an extension of time

(EOT) where the refusal is triggered directly by

some breach or overt act on the part of the

Employer



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Consequences of Acceleration

(1) “Out of Sequence” Work

(2) Idle Time

(3) Lack of proper documentation

Acceleration of Works when EOT Claims

have not been Settled

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“Float” in

Programmes

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“Float” is to absorb inevitable delays

• inclement weather• strikes• breakdowns• non-performance of sub-contractors• defects• etc.

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Under most forms of Contract:

• Early completion within time for

completion

• Programming tolerances

• EOT for delays to progress

• Fair entitlement to EOT

• Therefore, Contractor owns float under

the Contract

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Concurrent Delays

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Concurrent Delays

“A period of project overrun which is caused

by two or more effective causes of delay which

are of appropriate equal causative potency.”

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Concurrent Causes & Sequential Effect

Concurrent Causes

CA

CB

(Rare)

Sequential Effect

DA

DB

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Sequential Causes & Concurrent Effect

Sequential Causes

CX

CY

(Common)

Concurrent Effect

DX

DY

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Notices of Delay

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EOT gives more time to

complete concurrent

activities

LDs cannot be levied for

period of Employer’s delay

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Notice is not condition precedent for granting

EOT under some contracts

Otherwise risk to Employer of losing LDs

However, notice is condition precedent for

financial claims in many contracts

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Claims (by the Contractor to recover Costs)

Loss & Expense

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Claims: Principles

“Claims” = requests made by Contractors for additional

payment to account for their Loss or Expense caused by

the actions of others.

Claims may arise due to:

delays and Extensions of Time;

changes to the nature of the project;

disruption caused by the Employer (or its Agents); or

variations to the Contract.

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Extension of Time vs. Loss and Expense

Extensions of Time:

Decisions are made on the impact of a EOT Event on the time required to complete the Works

Loss and Expense:

Claims are made by the Contractor to recover additional expenditure or loss arising due to delay and/or disruption caused by others

There is no direct link between Extension of Time claims and Loss & Expense claims

An Extension of Time does not always justify a claim for Loss & Expense

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Types of claim (for loss and/or expense)

Contractual claims

Follow the procedures defined by the Contract

• Quick and (usually) simple to settle

Common law claims

Result from breaches of implied Contract terms

Can be recovered via Contract or litigation

Quantum meruit claims

If no prior agreement of cost

Ex gratia claims

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Supporting Documents

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Supporting a claim

The Contractor must support every claim with full and

detailed records, including:

Relevant Contract Documents

Relevant Contract Conditions

Master Programme

Contractor’s own routine records

• Including Clerk of Work’s certification of their accuracy or

record (but not of claim validity)

Contractor’s additional records specific to the claim

• Including Site Meeting Minutes, relevant correspondence,

Progress Reports, photographs, emails, Time Sheets/Cards,

Daywork Records, Daily Site Report etc.

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Heads of Claim

The documentation submitted by the Contractor

to support a claim for loss and/or expense is

called a “Heads of Claim”

The Heads of Claim must clearly state the

payment requested for each Extension of

Time event“Global” claims will only be accepted if costs cannot be isolated

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Heads of Claim

The Heads of Claim must document:

Additional preliminaries costs

• Site infrastructure and plant costs

Reduced labour productivity (Disruption Analysis)

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 meetings, photographs, etc.

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• additional payment in respect of prolongation of Contractor’s resources

• extensions of time do not give automatic entitlement to payment for prolongation

• can be reduced by Contractor’s culpable delay, particularly for damages

Prolongation

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Quantity Surveyor’s duty to determine the value of

variations

Meaning of:

- “same or similar character”

- “same or similar conditions and

circumstances”

- “valuation based on the rates in the Contract”

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Elements of Prolongation

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Prolongation includes:

• plant hire / depreciation • general labour • manufacturing facilities etc • site staff • offices and equipment • utility services• transportation and storage

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• safety and quality• bonds, insurances, warranties • head office services• external consultants • increased costs due to inflation • increased cost of overheads • idle resources due to inclement weather • profit (variations)• financing

Prolongation includes (contd):

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Allow for recovery through direct value of variations

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Notices of Claim

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Time barring provisions of Contract

Breach of Contract

Effect of Contractor’s culpable delay on

payment for prolongation

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Concurrent Delays

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Periods of prolongation

for

assessment of cost or valuation

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Prolongation claims due to VARIATIONS must be claimed using TIME-RELATED Preliminary Rates from the Contract BQ

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Prolongation claims due to Employer’s breach of Contract can be claimed using TIME-RELATED Actual Site Overhead Costs

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Prolonged Costs

Based on As-Built Programme after running Delay & Disruption Analysis

Includes:

(1) Prolonged employment of resources

(2) Committed additional resources

(3) Delayed employment of resources

Excludes:

(4) Postponed employment of resources