16Contractors’ delay and disruption costs
A contractor is, of course, entitled under the contract to be paid for work done, including where appropriate the ascertained value of any variations ordered. In Chapter 15 we considered approaches to compensation paid to contractors for variations or additional work. But construction projects can be delayed, or progress disrupted, by all manner of causes, exposing the contractor to additional costs. In addition, the contractor may be able to make other claims against the employer. In Chapter 14 we considered the additional time that a contractor might be awarded as a result of delaying events. We now turn to the additional cost that might be due arising from the same or further delaying or disrupting events.
Additional costs arising from delay to completion of the works may be termed prolongation costs; additional costs from delay that does not impact completion may be termed disruption costs. The ways in which these matters are addressed in standard forms are very different. JCT forms contain a suite of clauses that are dedicated to such claims for loss and/or expense. FIDIC contracts refer to these as contractor’s claims for any additional payment. In NEC3 contracts these claims are not separately identified; they are treated together with variations and time claims in assessing costs arising from compensation events. We discuss the approach taken in each form below.
16.1CONTRACT CLAIMS AND DAMAGES
Most of the standard form construction contracts currently in use (with the exception of those designed for relatively small projects) contain detailed provisions under which the contractor can claim against the employer for any losses suffered if the work is disrupted due to certain specified causes. These provisions often bear some resemblance to, or will be part of, those under which an extension of time may be claimed, but there are at least two important distinctions between the two issues. First, under the JCT forms, an extension of time will only be granted where the contract administrator believes that completion of the works is likely to be delayed, whereas financial compensation for disruption does not necessarily depend upon any such delay, so the cause of disruption may need to be explained separately. Second, as we have already noted, under the JCT forms, the contractual grounds for which an extension of time might be awarded do not always extend to grounds for which additional cost will be reimbursed.
This feature of provisions dealing with compensation for delays means that, in many cases, an event that enables a claim to be made will also entitle the contractor to recover damages for breach of contract. In particular, it may amount to a breach
250 Construction contracts
of the employer’s implied obligation of co-operation with the contractor, which was discussed in Chapter 12. If this is so, it is for the contractor to decide whether to sue for breach of contract at common law or to claim under the appropriate clause in the contract. The contractor’s right to choose between these remedies can only be removed by clear words in the contract itself, and this would be most unusual; indeed, JCT contracts expressly state that the contractor’s common law rights are preserved.
In deciding which is the better remedy to pursue, it is worth noting that the choice will not normally affect the amount of money the contractor is likely to receive. As we shall see, the courts have ruled that ‘direct loss and/or expense’ (the words used in many contracts to describe what can be claimed in such cases) is to be assessed on exactly the same basis as damages for breach of contract. However, there are certain respects in which the two remedies are different, and these differences must be borne in mind when a claim is under consideration.
The main distinctions between making a contractual claim and bringing a legal action for damages are as follows:
Although there is a broad similarity between the grounds on which a contractual claim may be made, and the conduct of an employer that amounts to a breach of contract, the two things are not identical. For example, while the disruption caused by an architect’s instruction to postpone any part of the work may give rise to a claim under JCT SBC 11, the giving of such an instruction would not normally amount to a breach of contract. Conversely, failure by the employer to provide continuous access to the site as promised is a clear breach of contract, but by no means all standard form contracts make this the subject of a claim.
A claim under the contract will be settled by the contract administrator, sometimes with the assistance of the quantity surveyor, and will be paid through the normal contractual machinery. This means that the amount in question is added to the contract sum and will appear on the next interim certificate to be issued after the claim is settled. By contrast, damages can only be awarded by a court, arbitrator or adjudicator, whose judgment or award is then enforced in the normal way. The only exception to this is where the contract administrator is given express power to deal with claims for breach of contract; this is most unusual.
The preceding point would tend to suggest that, where there is a choice, a contractor would be better off claiming under the contract. However, an important limitation on contractual claims is that any specific procedural provisions in the contract (such as the giving of written notice or the furnishing of sufficient supporting information) must be strictly complied with. If they are not, then the contractor is thrown back on common law rights and can only sue for damages. Some cynical observers have also pointed out that, since many of the events which justify a claim are based on some default by the contract administrator (such as late delivery of necessary information to the contractor), the latter may find it difficult to make a completely impartial decision on the contractor’s claim.
Contractors’ delay and disruption costs 251
16.2GROUNDS FOR CONTRACTUAL CLAIMS
It cannot be too strongly emphasized that any contractual claim made must be based upon some specific provision of the contract in question. The mere fact that unexpected difficulties have been encountered, or that the work is proving far more expensive than was foreseen, does not entitle a contractor to be compensated by the employer. Naturally, there is considerable variation among construction contracts as to the permitted grounds of claim, although we can get a general idea from a brief consideration of some of the more important standard forms.
Before looking at specific grounds, however, an important general point must be made. Contractors’ claims are often extremely complex affairs, in which it is often alleged that a large number of disrupting events have resulted in an equally large number of items of loss and/or expense, but where it is difficult or impossible to attribute every item of loss to an individual cause. This presents difficulties because in any claim by a contractor before an English court or arbitral tribunal, the contractor must prove, on the balance of probabilities, that the employer was responsible for an event or breach and that the event or breach caused the contractor to suffer the relevant loss. It is often difficult, time-consuming, expensive and, in some cases, impossible, to do this in complex engineering and construction projects. As a result, contractors often make so-called global claims which, in effect, seek to remove the need to prove individual causation. Such claims highlight a series of employer-risk events (whether they be breaches, acts of prevention or interference, or changes to the scope of work) and link these to a global loss, without ‘joining the dots’ between individual events and losses.
It has, for many years, been understood that, as long as all the causes are qualifying events under the contract, and that the impossibility of separating them is not due to the contractor’s own delay in bringing the claim, they may be presented as a ‘global’ or ‘rolled up’ claim.1 Difficulties emerge if some qualifying events were not matters for which the employer was responsible. 2 After a review of the authorities in Walter Lilly & Co Ltd v Mackay3 it was observed that, assuming there are no contractual restrictions on global claims, there is no set way for a contractor to prove its case, although it was acknowledged that a tribunal might be more sceptical about a global claim than had the contractor managed to prove each loss attributable to particular failures. Further, global claims should not be rejected out of hand, even where the need for a global claim had been caused by the contractor making it impossible to disentangle one claim and loss from another. Therefore, it is not right to say, as some commentators have previously argued, that a single issue, which is not properly pleaded or proved or which is shown to be the fault of the contractor, will undermine the entire global claim. One mistake in a global claim does not prove fatal to that claim.
1 J Crosby & Sons Ltd v Portland UDC (1967) 5 BLR 126; Merton LBC v Stanley Hugh Leach Ltd
(1985) 32 BLR 51.
2 Mid-Glamorgan CC v J Devonald Williams & Partner (1991) 8 Const LJ 61; Imperial Chemical Industries plc v Bovis Construction Ltd (1992) 32 Con LR 90; Bernhard’s Rugby Landscapes Ltd v Stockley Park Consortium Ltd (1997) 82 BLR 39.
3 (2012) EWHC 1773 (TCC).
252 Construction contracts
16.2.1Loss and expense under JCT SBC 11
A claim for compensation under JCT SBC 11 clause 4.23 requires the contractor to prove two things:
1.That the contractor has incurred, or is likely to incur, direct loss and/or expense which would not otherwise be reimbursed under the contract; and
2.that this loss arises from either:
(a)deferred possession of the site, where this is permitted under clause 2.5; or
(b)…the regular progress of the Works or of any part of them has been or is likely to be materially affected by any of the Relevant Matters.
The ‘relevant matters’ are as follows:
1.Variations, except when loss and/or expense relates to a confirmed acceptance of a Schedule 2 Quotation.
2.Instructions of the architect or contract administrator, issued in accordance with clause 3.15, for postponement of any work to be carried out under this contract. The generally accepted view is that this provision does not empower the contract administrator to postpone all the work, so as to enable the employer not to give possession of the site at the agreed time. It is concerned rather with instructions which alter the order in which the works are to be carried out, for instance to accommodate a sub-contractor. Such a procedure may of course cause the contractor loss through the need to reprogramme.
3.Instructions of the architect or contract administrator, issued in accordance with clause 3.16, for expenditure of provisional sums, excluding those for defined work.
4.The opening up for inspection of any work, or the testing of any work, materials or goods (including making good afterwards), under clause 3.17. Naturally, there can be no claim where such inspection or testing reveals a breach of contract by the contractor.
5.Any discrepancy in or divergence between the contract drawings and the contract bills.
6.Suspension of the work by the contractor in accordance with clause 4.14, which gives effect to the Scheme for Construction Contracts under the Housing Grants, Construction and Regeneration Act. If the employer fails to pay the contractor in full any payment due under this contract, and if the contractor has given seven days notice of the intention to suspend, then the contractor can suspend work until payment is made. Because this is a relevant matter, the contractor can also claim loss and/or expense resulting from this suspension.
7.Carrying out work where the quantity indicated in an approximate quantity was not an accurate forecast of the amount of work required.
8.A clause that brings together a variety of events under an overall condition referring to any impediment, prevention or default, whether by act or omission, by the employer or various agents of the employer. Anything contributed to by the contractor’s people is excluded. This clause will cover
Contractors’ delay and disruption costs 253
the late receipt of instructions, drawings or other details from the contract administrator. Unlike older versions of the contract, this is not dependent upon the contractor having specifically applied in writing for the information at a reasonable time. Contract administrators are expected to know when information will be required. Other contracts that mention this usually make this reason for loss and/or expense dependent on the contractor having asked for the information at a reasonable time. As to what is a ‘reasonable’ time, it was held in a civil engineering case4 that this must have regard to the interests of the engineer, as well as to those of the contractor.
9.IC 11 contains a provision that does not appear in SBC 11, mention of delays related to instructions of the contract administrator in relation to named sub-contractors to the extent mentioned in clause 3.7 and Schedule 2.
16.2.2NEC3 ECC form
Under clause 60.1 the definition of compensation events is shown as comprising 19 separate grounds. No distinction is made between time claims, variations and other money claims because all consequences are addressed together both in the quotations in which claims are made and in their assessment. It is notable that one ground is a breach of contract by the Employer which is not one of the other compensation events in this contract. This, it would appear, covers a wider range of possible defaults outside those otherwise listed. It also seems, as an employer breach comes within the definition, that a claim made in relation to employer’s default ought to be made under the contract and in accordance with clause 20.1.
16.2.3FIDIC 1999 Red Book
No attempt has been made to collect under a single clause the various grounds on which ‘additional cost’ may be claimed. The main items are:
Delayed drawings or instructions, unless the engineer’s failure to provide drawings in good time was caused by the contractor (clause 1.9).
Delayed or lack of access to the site (clauses 2.1 and 11.7).
Compliance with an instruction (clause 3.3) to the extent to which it is a variation.
Unforeseeable cost arising from works by the employer’s personnel, or his contractors or public authorities (clause 4.6).
Incorrect site data which was not practicable for the contractor to discover (clause 4.10).
Unforeseeable physical conditions (clause 4.12).
Dealing with fossils, etc. (clause 4.24).
Compliance with testing instructions (clause 7.4).
Events which may adversely affect the work (clause 8.3).
4 Neodox Ltd v Swinton & Pendlebury UDC (1958) 5 BLR 34.