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General provisions

Clause 4.23 of the Joint Contracts Tribunal (JCT) Standard Building Contract With Quantities 2011 (JCT 2011 - available from RICS Books ) provides that, in certain circumstances, wherethe contractor:

'incurs or is likely to incur direct loss and/or expense for which he would not be reimbursed bya payment under any other provision in these conditions ... the Architect/ContractAdministrator shall ascertain, or instruct the Quantity Surveyor to ascertain, the amount of theloss and/or expense which has been or is being incurred ... '

(Reproduced with kind permission of JCT. ? JCT)

This restricts the application of the rules associated with reimbursement of reasonable costs tosituations where the contract does not allow those costs to be 'valued' under any otherprovision.

Valuation of variations

Clause 5 of the Joint Contracts Tribunal (JCT) Standard Building Contract With Quantities 2011 (JCT 2011) sets out provisions relating to variations and provisional sums generally,while clause 5.6 deals with the valuation rules. At clause 5.6.3.3 this includes allowances,where appropriate, for any addition to or reduction of preliminary items. This may includeallowances for delay and disruption. All additional preliminaries associated with variationsshould be valued using rates set out in the contract bills where appropriate.

If the rates in the contract bills are not appropriate (see clause 5.6 and Henry Boot v AlstomCombined Cycles [2000]) and fair rates and prices are to be used, then these may be basedon actual cost adjusted to bills of quantities pricing levels.

In Henry Boot v Alstom the relevant bill rates were in fact unrealistically high, and Henry Bootaccepted that it had made an error in its calculation. Henry Boot nevertheless insisted that itwas entitled to be paid for the extra work on the basis of those artificially high bill rates. Thearbitrator disagreed with Henry Boot, applying fair rates and prices instead. Henry Bootappealed against the arbitrator's award to the Technology and Construction Court (TCC), on amatter of law. The judges found in favour of Henry Boot, stating that bill rates, even thoughthey contain an error, should be applied to additional work where the provisions of the contractso provide.

The Institution of Civil Engineers (ICE) Conditions of Contract Measurement Version (7thedition) adopts a similar procedure, by referring to the 'price' of ordered variations in clause 52.This price is to be based, where appropriate, on the rates set out in the bills of quantities.Clause 53 makes provision for the contractor to claim a higher rate or price or any additionalpayment pursuant to any clause of these conditions other than sub-clauses 3 and 4 of clause52 (valuing variations) or clause 56(2) (increase or decrease in rate due to actual quantitiesbeing greater or less then the measured quantities). The ICE 7th edition therefore restricts thereimbursement of reasonable additional costs to situations where these costs cannot be'valued' under the contract.

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Arguably clause 4.23 of JCT 2011 allows the reimbursement of reasonable costs associatedwith general disruption caused by a number of variations that would not have been incurred byreason of any one of the variations in isolation. The ICE 7th edition does not provide for suchreimbursement other than by adjustment of the bill rates for the individual variations.

The difference of approach between valuing variations and valuing claims for loss andexpense is highlighted in the case of Weldon Plant Ltd v The Commission for New Towns [2000].

See also WW Gear Construction Ltd v McGee Group Ltd [2010] which adds further supportfor the decision in Merton v Leach.

Duties of parties involved

Duties of the architect or engineer

Under clause 4.23 of Joint Contracts Tribunal (JCT) Standard Building Contract WithQuantities 2005 (JCT 2011), and having received a notice from the contractor, thearchitect/contract administrator should from time to time ascertain the amount of loss orexpense. This provision allows the architect/contract administrator to ascertain the amount ofloss or expense on more than one occasion - when the notice is first given, and thereafter,when more information becomes available.

Under the Institution of Civil Engineers (ICE) Conditions of Contract Measurement Version(7th edition), and having received a notice from the contractor, the engineer should determinethe amount of any costs to be paid in the monthly statements. See clause 60(2) (a), whichallows the engineer to determine the additional cost on the occasion of each monthlystatement.

Under clauses 53(1) and 53(2) of the ICE 7th edition, the contractor must keep suchcontemporary records as may reasonably be necessary to support any claim it maysubsequently wish to make. In addition, under clause 53(3), the engineer may instruct thecontractor to keep such contemporary records as are reasonable, and to allow the engineer toinspect these.

The architect or engineer need not make an ascertainment or determination during thecurrency of the contract works unless a notice has been provided by the contractor. However,if the architect or engineer is aware that the contractor is incurring additional loss, expense oradditional costs, it is good practice to ascertain or determine the level of those losses,expenses or costs. If such a notice is provided, and if the other requirements are met and thearchitect or engineer does not ascertain or determine the amount of loss, expense oradditional costs, this will probably result in a referral to adjudication. It may also entitle thecontractor to interest or finance charges (see London Borough of Merton v Stanley HughLeach [1985] ). Such action could also amount to a breach of contract, entitling the contractorto other damages, such as statutory interest for late payment at a much higher rate.

Clause 4.3.3.4 of JCT 2011 and clauses 7(4), 12(6), 13(3), 14(8), 31(2), 40(1) and 42(3) of theICE 7th edition provide that the architect or engineer shall include any such amounts soascertained or determined within the interim certificates or monthly statements.

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Retention is not deducted from loss and expense under JCT 2011, although it is deductedfrom additional cost under the ICE 7th edition.

Clause 4.5.2.1 of JCT 2011 and clause 60(4) of the ICE 7th edition provide that the architect orengineer shall ascertain or determine any loss, expense or additional cost as part of the finalaccount.

In London Borough of Merton v Stanley Hugh Leach Ltd [1985], the court indicated that underthe JCT 63 conditions, a notice by the contractor was necessary before the architect wasobliged to ascertain loss and expense. However, if the contractor had made a claim fordamages, rather than for loss and expense, then a notice would not have been necessary toassess the damages incurred (this reasoning may also be applied to other forms of contract).In this case, therefore, failure by the contractor to provide a notice did not prevent it fromrecovering damages for breach of contract, but it did prevent it from recovering loss orexpense under the terms of the contract.

Duties of the contractor

Clauses 4.23 of JCT Standard Building Contract With Quantities 2011 (JCT 2011) and 53 ofthe ICE Conditions of Contract Measurement Version (7th edition) require the contractor tomake written application to the architect/contract administrator or engineer stating that it hasincurred, or is likely to incur, direct loss and expense.

In Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773 (TCC) the court held thatsuch written applications under the JCT contracts are a condition precedent to recovery by thecontractor. In terms of the timing of such notices the court held that:

'for time related preliminary costs, the Contractor can wait until it is clear that the loss orexpense has been incurred [before making the application]; thus, if the delay has notactually happened, the extended preliminary costs will (often) not have been incurred andthe Contractor can therefore wait before serving its application until it has actually beenincurred.'

In relation to the costs associated with such application the court held that:

'Clause 26.1 [of JCT ?98] expressly says that the application under Clause 26.1 does nothave to be given with a money quantification, because the bracketed wording suggests onlythat the Contractor "may give his quantification"'.

Arguably clause 4.23 of JCT 2011 is even clearer in this respect.

Clause 4.23.2 of JCT 2011 requires the contractor to submit upon request such information aswill enable the architect/contract administrator to form an opinion as to whether such loss andexpense has been, or is likely to be, incurred. Similar provisions are contained within the ICE7th edition (for example, clause 53).

In the Walter Lilly case, the court held that:

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'all that is required is that the architect must be reasonably put into a position in which it canform an opinion that "direct loss and/or expense has been incurred or is likely to be incurred... because the regular progress of the Works ... has been materially affected" by the givenevents.'

Clause 53 of the ICE 7th edition requires the contractor, after submitting notice of a claim, tokeep such contemporary records as may reasonably be necessary to support any claim it maysubsequently wish to make. A similar provision could be implied within JCT 2011. On thebalance of probabilities, failure to keep records will, in any event, have an adverse impact onthe contractor's ability to prove a loss.

Clauses 4.23.3 of JCT 2011 and 53 of the ICE 7th edition require the contractor to submitupon request such details of loss, expense and additional costs as are reasonably necessaryfor the ascertainment or determination of these as aforesaid.

In the Walter Lilly case, the court held that:

'it is necessary to construe the words in a sensible and commercial way that would resonatewith commercial parties in the real world. The architect or the quantity surveyor must be putin the position in which they can be satisfied that all or some of the loss and expenseclaimed is likely to be or has been incurred. They do not have to be "certain". One has tobear in mind that the ultimate dispute resolution tribunal will decide any litigation orarbitration on a balance of probabilities and at that stage that tribunal will (only) have to besatisfied that the contractor probably incurred loss or expense as a result of one or more ofthe events listed in Clause 26.2 [of JCT 98]. Bearing in mind that one of the exercises whichthe architect or quantity surveyor may do is allow loss and expense, which has not yet beenincurred but which is merely "likely to be incurred"; in the absence of crystal ball gazing,they cannot be certain precisely what will happen in the future but they need only to besatisfied that the loss or expense will probably be incurred.'

Establishing the claim

Heads of claim

Under both the JCT and the ICE provisions, the contractor is given an entitlement to recoverreasonable costs associated with a number of identified issues. In JCT Standard BuildingContract With Quantities 2011 (JCT 2011), these are referred to as 'matters' and are listed inclause 4.24. In the ICE Conditions of Contract Measurement Version (7th edition), theseissues are identified within the individual clauses.

When calculating the reasonable costs of the contractor, it is essential to start with each ofthese issues (causes), tracing their effects through the contractor's accounts. The informationprovided by the contractor needs to be presented in sufficient detail to allow this to be effected.However, strict proof is not required. So long as the claim assessor is satisfied that there is anentitlement, they should assess the quantum on that basis. (See Ascon Contracting Ltd vAlfred McAlpine Construction Isle of Man Ltd [1999] and Section 4.2.1.9 of the old Surveyors'Construction Handbook .)

Important issues to be considered are those of causation and remoteness, which arediscussed below.

Causation

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When tracing the effects of the heads of claim through the contractor's costs, it is necessary toconsider each of the claimed costs, identifying whether it has been caused by the head ofclaim currently under consideration.

The first test to apply is the 'but for' test. That is, 'but for the occurrence represented by thishead of claim, would this cost still have been incurred?' If the answer is 'yes', apply the secondtest. If the answer is 'no', the cost has been caused by the occurrence.

If the first test has not been satisfied, the second test is to identify the 'dominant' cause. Thatis, if there are two or more potential causes of the loss at any given point, what is the dominantcause of the loss? In such circumstances it is the dominant cause which is deemed to havecaused the loss. If there is no dominant cause such that the competing causes are equallyeffective in delaying the works, the causes of loss are considered concurrent.

In determining the dominant cause of the delay it will usually be the event that causes thelongest delay that is dominant.

The correct approach will usually be to step through the programme month by month todetermine when there were delays occurring, what effect they were having on the plannedcompletion of the works and therefore which delays were dominant.

Where there are genuine concurrent causes of delay the approach adopted by the courts inScotland differs from the approach adopted by the courts in England.

In Scotland the loss should be apportioned between the causes. See John Doyle ConstructionLtd v Laing Management (Scotland) Ltd [2004] and London Underground Ltd v CitylinkTelecommunications Ltd Rev 1 [2007] .

In England the contractor should be granted a full extension of time but they cannot recover inrespect of the loss caused by the delay.

If the loss is deemed to have been caused in fact by the occurrence under consideration. Thequestion of whether the loss has been caused in law by the occurrence is referred to as'remoteness of damage' and is discussed in the next section.

Remoteness

Having satisfied the tests of causation in fact, the third test is to establish whether or not theloss has been caused by an occurrence in law. That is, whether or not a loss is 'too remote'.

In F. G. Minter v Welsh Health Technical Services Organisation [1980] , the court decided thatthe first rule in Hadley v Baxendale [1854] was synonymous with 'direct loss and/or expense'under the Joint Contracts Tribunal (JCT) 63 standard form of contract. We can apply thisreasoning to the JCT 2005 forms and to 'additional costs' under the Institution of CivilEngineers (ICE) forms.

The test to be applied is whether or not the loss arose naturally from the ordinary course ofthings. That is, whether at the time a contract was entered into, a reasonable person would

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have concluded that the loss of the type in question was a serious possibility, or a real dangeras a result of the event in question.

This issue has been reconsidered and approved by the House of Lords in the case of Jacksonv Royal Bank of Scotland (HL; 2005) .

For example a situation in which an architect issues late information, which delays a brickworksubcontractor by 4 weeks. One week after the subcontractor would otherwise have completedthe works, they become insolvent. The main contractor is put to considerable additional costand delay in appointing another subcontractor to complete the works. Is the employer liable forthis additional time and cost? The additional cost has been caused in fact by the lateinformation, as without this, the additional costs arising out of the insolvency would not havebeen incurred. However, it may not be recoverable by the contractor. It may be considered tooremote, on the grounds that it is a type of loss that the parties could not reasonably haveconsidered (at the time that the contract was entered into) as being a serious possibility as aresult of late issue of information.

However, if both causation in fact and in law have been satisfied, then the loss is recoverableunder the head of claim under consideration (see Section 4.2.2.2 of the Surveyors'Construction Handbook).

Mitigation

'Mitigation' is the phrase used in law to refer to the obligation on the claimant to temper thecosts that it intends to claim as damages.

This principle denies the claimant the opportunity to recover any part of the damage that hasbeen caused unnecessarily or that could readily have been avoided by the claimant. (See British Westinghouse Company v Underground Electric Railways [1912] .)

The principle does not impose on the claimant an obligation to take any step that a reasonableand prudent person would not ordinarily take in the course of their business. Nor does itimpose on the claimant an obligation to spend significant sums of money to mitigate a loss.

Similarly, the express obligation in clause 2.28.6.1 of JCT Standard Building Contract WithQuantities 2005 (JCT 2005) is not thought to impose on the contractor an obligation to spendsubstantial sums of money to reduce delays.

Extensions of time

There is a link between loss and expense (or additional cost for delay) and disruption andextensions of time, although the link is not so close as many believe. See City Inn Ltd vShepherd Construction Ltd [2010] .

If an architect or engineer grants an extension of time on grounds that also attract loss andexpense or additional cost, then that loss and expense or additional cost will usually beascertained or determined for that period. However, it must be recognised that loss andexpense or additional cost may go beyond just the costs of keeping the site open. Disruptionmay also feature under the same head of claim.

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Under JCT Standard Building Contract With Quantities 2011 (JCT 2011), when valuing loss orexpense associated with a delay to works, these amounts must be proven as actual losses orexpenses. For this purpose, bill rates should not be used. When valuing additionalpreliminaries that can be attributed to specific instructions, these may be valued at bill rates.Under the Institution of Civil Engineers (ICE) Conditions of Contract Measurement Version (7thedition), such additional preliminaries arising out of the engineer's instructions should bevalued according to bill rates adjusted as appropriate (see clause 52(3)).

Under both the JCT 2011 and ICE 7th edition contracts, the matters facilitating reimbursementof additional cost are different from the events facilitating an extension of time.

Under either set of conditions, a contractor may have been delayed by an employer, but neednot be entitled to an extension of time (if, for example, the contractor would otherwise havefinished early). Under these circumstances, the contractor would, however, still be entitled toloss and expense or additional cost.

When ascertaining or determining the costs of increased preliminaries for prolongation, it iscommon practice to use the amounts in the contract bills proportioned to the length of thedelay. Depending on the circumstances, this may be correct under the ICE 7th edition andunder the provisions of clause 5.6.3 of the JCT conditions. Where the bill rates are not to beused, the actual cost to the contractor of the additional preliminary items is the correct basis ofascertainment or determination, and full details of such costs must therefore be provided bythe contractor.

From the principles discussed above, it will be apparent that the actual cost incurred by thecontractor because of the delay is more likely to be incurred at the time of the delay than at theend of the contract (see Sections 4.2.3.2 and 4.5.3 of the old Surveyors' ConstructionHandbook).

For a full discussion of this aspect, see Extensions of time .

Loss of overheads and profit

Fixed overheads are sometimes referred to as 'head office' overheads. These are costs thatare not project-specific, and may include surveying and senior management time.

Where the cost or value (as appropriate) of additional resources specifically and reasonablydevoted to the project as a result of delay or disruption can be separately identified, such asthe time spent by surveyors and managers, then these should be separated out and pricedaccordingly. These need not be subjected to the 'but for' test set out below.

The issue of additional recovery for these items, which cannot be separately identified asspecifically relating to the project in question, usually occurs where a contractor has beendelayed by additional work, the late issue of information or the suspension of work. Thecontractor may argue that its non-job-specific fixed overheads have been employed for longerthan anticipated and that a full recovery has not been made in respect of them. This potentialto recover for loss of profit was expressly approved by the Court of Appeal in PeakConstruction (Liverpool) Ltd v McKinney Foundations Ltd [1970] .

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As explained above, under the rules of the Joint Contracts Tribunal (JCT) Standard BuildingContract With Quantities 2011 (JCT 2011) and the Institution of Civil Engineers (ICE)Conditions of Contract Measurement Version (7th edition), the site and head officepreliminaries may be valued at bill rates depending on the head of claim (typically, delaycaused by an architect's or engineer's instruction). When ascertaining loss and expense underJCT 2011 or determining additional cost under ICE 7th edition, it will be necessary to apply theprinciples set out above.

In practice, the hardest of the tests to satisfy when valuing head office overheads is the 'butfor' test (that is, 'but for this delay, would the contractor have been able to recover additionalmonies in respect of these overhead costs by taking on other work?', or, put another way, hasthe contractor been deprived of the opportunity to mitigate these costs by, say, making staffredundant sooner? - see Causation ). Proof that the contractor was turning work awaybecause of the delay to a particular project may be found by reference to the contractor's orderbooks, invitations to tender and general market conditions.

If the 'but for' test is satisfied, together with the other tests described in this chapter (see Establishing the head of claim ), then reimbursement of the costs of the fixed overheadsshould be made.

If the 'but for' test has been satisfied, a formula may be appropriate in order to calculate theloss (see Section 4.2.5.11 of the old Surveyors' Construction Handbook). The 3 formulae incommon use - Hudson, Emden and Eichleay - have all been used by the courts, but perhapsthe Eichleay formula is a better estimate of true loss than the other two.

The Hudson formula is as follows:

head office percentage x contract sum x delay period contract period

(where the head office percentage is the percentage for head office costs illustrated in the billsof quantities.)

The Emden formula is similar to the Hudson formula, except that the head office percentage iscalculated from the contractor's accounts, rather than the bills of quantities.

The Eichleay formula is as follows:

total overhead costs total project cost during contract period x to the contractor x delay period total turnover during contract period the same period

In practice, if the 'but for' test is satisfied, then either the Emden or the Eichleay formulae willsuffice. Unless deliberately using bill rates for overheads and profit, the Hudson formula shouldbe avoided.

All the formulae are an estimate of the loss and should only be used where no better methodof calculation is possible.

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When calculating the loss for additional overheads in this way, account needs to be taken ofthe additional contribution towards overheads earned through the performance of additionalworks. Arguably, it is only the additional works undertaken during the delay period that shouldbe taken into account, as additional works undertaken outside of this period would not havecontributed to the overheads in question.

If the 'but for' test is not satisfied, and the contractor cannot demonstrate that the delay hascaused it any loss or expense, then the mere fact of management resources having beendeployed on the project during the delay period may not be enough to trigger an entitlement.(See Phee Farrar Jones Ltd v Connaught Mason Ltd [30 April 2003] CILL (2003) 2005.)

However, in Euro Pools v Clydesdale Steel Fabrications Ltd 2003 SC (D) 18/1 the court heldthat it was not necessary to demonstrate an actual loss in order to recover for the time ofemployees and directors.

In Robertson Group (Construction) Ltd v Amey-Miller (Edinburgh) Joint Venture & Others[2005] ScotCS the court held that the phrase 'all direct costs and directly incurred losses' in aletter of intent was sufficiently broad to enable the contractor to recover for overheads andprofit. The court concluded that it cannot have been the intention of the parties to limit therecovery of the contractor to reimbursement of its outlays only.

See also the judgment in Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773(TCC) at paragraphs 540 to 554 for an example of a case in which head office overheads andprofit were recovered by the contractor in full, together with a detailed explanation of theprinciples to be applied.

Costs of preparing the claim

An argument often put forward by contractors is that they have incurred reasonable expensesin preparing a claim, and that these expenses should be recoverable as part of the claim. Thisargument has never been fully accepted by the courts, and as such should usually be rejected.The preferred view is that the costs for preparing a claim are only recoverable asextra-contractual damages in three circumstances:

1. Under the Joint Contracts Tribunal (JCT) conditions, where the employer is inbreach of contract by failing to prepare the final account and the contractormitigates the damage by preparing it for the employer. This is not applicableunder the Institution of Civil Engineers (ICE) Conditions of ContractMeasurement Version (7th edition) (see clause 60(4));

2. the contractor has been instructed to collate or analyse information in a mannerbeyond that which could reasonably have been expected; and

3. costs in the course of arbitration or litigation, such as the appointment of anexpert witness, where the contractor is successful.

In all of the above circumstances, only reasonable costs are recoverable. Invariably, when aclaim proceeds to arbitration or litigation, the original claim presented by the contractor isredrafted and represented. In these circumstances, the costs associated with the originalpreparation of the claim are not recoverable (see James Longley v South West RegionalHealth Authority [1983] ).

In Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773 (TCC) the courtconcluded that claim preparation costs could be a valid head of claim but found it very difficult

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to unravel exactly what the claims consultant had been doing in that case. The court thereforemade a conservative allowance for such costs as an additional preliminary resource needed tohelp manage the delay that was occurring.

Wholly owned plant and plant hired from a sistercompany

Where a contractor is claiming loss and expense for its own plant, notional plant hire rates arenot an acceptable method of calculating loss (see Alfred McAlpine Homes Ltd v Property andLand Contractors Ltd [1995] ). In such circumstances, actual loss must be calculated, takinginto account the substantiated costs of capital and depreciation. The calculation may notinclude other elements included in hire rates, such as periods of non-hire.

If the contractor can prove that, because of the delay, it has been deprived of the use of thatplant elsewhere and has therefore had to hire plant for another project, the associated extraand substantiated costs will be recoverable if they pass the 'remoteness' test outlined above.The hire charges of plant from non-associated plant hire companies will be recoverable inaccordance with the usual principles.

Where plant is hired from a sister company, the hire rates should be allowed if the contractorcan demonstrate that they are genuine market rates. In instances where a sister plant hirecompany has been set up as a vehicle to protect assets, but does not operate in the openmarket, particular care is needed. In such instances, hire rates are notional and bear norelevance to market hire rates. It should be remembered that the contractor has a duty tomitigate its loss. If plant could have been obtained more cheaply elsewhere, then thecontractor's compensation should be restricted to that lower rate.

Interest and finance charges

Interest or finance charges may be reimbursable if:

1. the contract provides so; 2. they are claimed as direct loss and or expense and form part of the loss incurred; 3. they are claimed as damages for breach of contract and form part of the loss

incurred; 4. the Late Payment of Commercial Debts (Interest) Act 1998 applies; or 5. interest is awarded by the court.

Neither the conditions contained in the Joint Contracts Tribunal (JCT) Standard BuildingContract With Quantities 2011 (JCT 2011) nor the Institution of Civil Engineers (ICE)Conditions of Contract Measurement Version (7th edition) make specific provision for therecovery of financing charges as part of the loss incurred, although both sets of conditionsprovide for the payment of interest in the event of late payment. In this context, financecharges are payable in respect of the amounts certified, whereas interest is payable if theamount certified is not paid in full by the final date for payment.

Items (3), (4) and (5) above are extra-contractual and therefore outside the scope of theresponsibilities of the claim assessor. However, the claim assessor must be aware of potentialrecoverability when advising the client. The award of interest by a court or arbitrator is at thediscretion of the court or arbitrator, but is often awarded as simple interest at a rate of 8% fromthe date the sum was due until the date of judgment.

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In F. G. Minter v Welsh Health Technical Services Organisation [1980] , the court was willingto accept that finance charges could form part of the loss incurred by the contractor. This wasachieved by interpreting JCT 63 (which contained similar provisions to JCT 80, JCT 98, JCT2005 and JCT 2011) as including a contractual right to interest as direct loss and expense. It isfelt that the ICE conditions should be interpreted in a similar way when determining cost.

As with other items of loss, expense and additional cost, only the contractor's reasonable costsare reimbursable.

In order to recover compound interest as part of the loss, it is not necessary for the contractorto issue repeated notices for the interest costs being incurred (see Rees and Kirby v SwanseaCity Council [1985]). The contractor is entitled to reasonable financing charges from theoccurrence of the loss until the date of payment on a compound basis. In Rees and Kirby itwas held that quarterly rests were appropriate. If the contractor delays reimbursement byfailing to provide details of its loss within a reasonable time, then this should be taken intoaccount when calculating the financing charges due.

Increased costs caused by delay

The contractor may claim that, as a consequence of delay, it has suffered price rises thatwould otherwise have been avoided.

In principle, such claims are valid, provided that the additional costs can be proven, any costshave been mitigated (for example by pre-ordering with the consent of the architect or engineer)and the costs do not duplicate that which has already been allowed for under fluctuationsclauses.

Global claims

Global claims arise where a contractor argues that it cannot allocate cost individually to eachof the heads of claim, but that the combined effects of the heads of claim have caused the lossin question.

The general rule of thumb is that such claims may experience difficulty with adequatelyaddressing the issue of cause and effect and therefore may not satisfy the requirement toprove causation.

In certain circumstances, however, such claims may be valid, provided that the followingconditions are met:

- it must be impracticable to make an accurate apportionment between the variousheads of claim;

- there must be no duplication in the costs awarded; and - there must be no profit element in the costs (see Crosby Ltd v Portland UDC [1967]

).

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It must also be established that the costs incurred are wholly the responsibility of the employer.There must be no neutral causes or causes that are the responsibility of the contractorwrapped up within the claim. Moreover, all of the above requirements must be met - failure onone invalidates the entire claim.

In some instances, a global claim may be a perfectly valid way of calculating loss. See, forexample, British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd and Others [1994] . Similar principles applied in GMTC Tools and Equipment Ltd v Yuasa WarwickMachinery Ltd [1994] . In both of these cases, the court refused to strike out claims made on aglobal basis and affirmed that the claimants were entitled to plead their claim in that way if theychose to do so. (See also London Borough of Merton v Stanley Hugh Leach Ltd [1985] andSection 4.2.4.10 of the old Surveyors' Construction Handbook.)

However, there is a large risk for the contractor in relying on global claims. If one factorfounded on as playing a material part in the causation of the global loss can be seen to be theresponsibility of the contractor, or otherwise not the responsibility of the employer and thatfactor cannot be adequately separated out or isolated then there will be no rational basis formaintaining any part of the claim (see John Doyle Construction Ltd v Laing Management(Scotland) Ltd [2002] CILL 1870 ).

A claim should not be dismissed solely on the basis that there are elements of the costs whichhave been calculated on a 'global basis'. The case of John Doyle Construction Ltd v LaingManagement confirmed that a global claim should not be dismissed if there was a possibility ofthe claiming party being able to demonstrate chains of causation between individual causesand heads of loss, or of the claiming party being able to demonstrate that the dominant causeof the loss was the employer's responsibility, or of the claiming party being able to use theprocess of apportionment to divide the costs between the various causes.

The case of John Doyle Construction Ltd v Laing Management has since received somelimited judicial support in City Inn Ltd v Shepherd Construction Ltd [2010] and LondonUnderground Ltd v Citylink Telecommunications Ltd Rev 1 [2007] .

In Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773 (TCC) the court providedthe following very useful summary at paragraph 486 of the judgment:

'(a) Ultimately, claims by contractors for delay or disruption related loss and expense mustbe proved as a matter of fact. Thus, the Contractor has to demonstrate on a balance ofprobabilities that, first, events occurred which entitle it to loss and expense, secondly, thatthose events caused delay and/or disruption and thirdly that such delay or disruption causedit to incur loss and/or expense (or loss and damage as the case may be). I do not acceptthat, as a matter of principle, it has to be shown by a claimant contractor that it is impossibleto plead and prove cause and effect in the normal way or that such impossibility is not thefault of the party seeking to advance the global claim. One needs to see of course what thecontractual clause relied upon says to see if there are contractual restrictions on global costor loss claims. Absent and subject to such restrictions, the claimant contractor simply has toprove its case on a balance of probabilities.

(b) Clause 26 [of JCT ?98] in this case lays down conditions precedent which, if notcomplied with, will bar to that extent claims under that clause. If and to the extent that thoseconditions are satisfied, there is nothing in Clause 26 which states that the direct loss and/orexpense cannot be ascertained by appropriate assessments.

(c) It is open to contractors to prove these three elements with whatever evidence will satisfythe tribunal and the requisite standard of proof. There is no set way for contractors to prove

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these three elements. For instance, such a claim may be supported or even established byadmission evidence or by detailed factual evidence which precisely links reimbursableevents with individual days or weeks of delay or with individual instances of disruption andwhich then demonstrates with precision to the nearest penny what that delay or disruptionactually cost.

(d) There is nothing in principle "wrong" with a "total" or "global" cost claim. However, thereare added evidential difficulties (in many but not necessarily all cases) which a claimantcontractor has to overcome. It will generally have to establish (on a balance of probabilities)that the loss which it has incurred (namely the difference between what it has cost thecontractor and what it has been paid) would not have been incurred in any event. Thus, itwill need to demonstrate that its accepted tender was sufficiently well priced that it wouldhave made some net return. It will need to demonstrate in effect that there are no othermatters which actually occurred (other than those relied upon in its pleaded case and whichit has proved are likely to have caused the loss). It is wrong, as Counsel suggested, that theburden of proof in some way transfers to the defending party. It is of course open to thatdefending party to raise issues or adduce evidence that suggest or even show that theaccepted tender was so low that the loss would have always occurred irrespective of theevents relied upon by the claimant contractor or that other events (which are not relied uponby the claimant as causing or contributing to the loss or which are the "fault" or "risk" of theclaimant contractor) occurred may have caused or did cause all or part of the loss.

(e) The fact that one or a series of events or factors (which are the risk or fault of theclaimant contractor) caused or contributed (or cannot be proved not to have caused orcontributed) to the total or global loss does not necessarily mean that the claimantcontractor can recover nothing. It depends on what the impact of those events or factors is.An example would be where, say, a contractor's global loss is ?1 million and it can proe that but for one overlooked and unpriced ?50,000 item in its accepted tender it wuld probably have made a net return; the global loss claim does not fail simply becausethe tender was underpriced by ?50,000; the consequence would simply be that the global lss is reduced by ?50,000 because the claimant contractor has not been able to prve that ?50,000 of the global loss would not have been incurred in any event. Similarly, aking the same example but there being events during the course of the contract which arethe fault or risk of the claimant contractor which caused or cannot be demonstrated no to cause some loss, the overall claim will not be rejected save to the extent that those evets caused some loss. An example might be (as in this case) time spent by WLC's mangement in dealing with some of the lift problems (in particular the over-cladding); assumingthat this time can be quantified either precisely or at least by way of assessment, that amunt would be deducted from the global loss. This is not inconsistent with the judge's reasonng in the Merton case that "a rolled up award can only be made in the case where te loss or expense attributable to each head of claim cannot in reality be separated", becase, where the tribunal can take out of the "rolled up award" or "total" or "global" loss elementsfor which the contractor cannot recover loss in the proceedings, it will generally be left wit the loss attributable to the events which the contractor is entitled to recover loss.

(f) Obviously, there is no need for the Court to go down the global or total cost route if theactual cost attributable to individual loss causing events can be readily or practicablydetermined. I do not consider that Vinelott J was saying in the Merton case (at page 102 lastparagraph) that a contractor should be debarred from pursuing what he called a "rolled upaward" if it could otherwise seek to prove its loss in another way. It may be that the tribunalwill be more sceptical about the global cost claim if the direct linkage approach is readilyavailable but is not deployed. That does not mean that the global cost claim should berejected out of hand.

(g) DMW's Counsel's argument that a global award should not be allowed where thecontractor has himself created the impossibility of disentanglement (relying on Merton perVinelott J at 102, penultimate paragraph and John Holland per Byrne J at page 85) is not onanalysis supported by those authorities and is wrong. Vinelott J was referring tounreasonable delay by the contractor in making its loss and/or expense claim; that delay

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would have led to their being non-compliance with the condition precedent but all that hewas saying otherwise was that, if such delay created difficulty, the claim may not beallowed. He certainly was not saying that a global cost claim would be barred necessarily orat all if there was such delay. Byrne J relied on Vinelott J's observations and he was notsaying that a global cost claim would be barred but simply that such a claim "has been heldto be permissible in the case where it is impractical to disentangle that part of the loss whichis attributable to each head of claim, and this situation has not been brought about by delayor other conduct of the claimant". In principle, unless the contract dictates that a global costclaim is not permissible if certain hurdles are not overcome, such a claim may bepermissible on the facts and subject to proof.'

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