Loss and Expense

It is generally accepted that there is no single definition of a loss and expense claim, but on a broad view, it could refer to any financial claim by a contractor, even if it just relates to a payment for a single variation. Loss and expense claims can also refer to a claim for unattributed costs rolled up and claimed against an Employer (or another upstream party) for one or more disrupting events. Such claims are usually referred to as total cost or global claims.

Contracts often provide an express right for loss and expense, for example, in the case of the JCT DB2016, a specific clause 4.16. The causes of the loss and expense need to be Relevant Matters; examples of which include Variations under Clause 4.17.1 or impediments, preventions or defaults by the Employer or Employer’s persons which are covered by Clause 4.17.4.

In accordance with the decision in Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773 (TCC) (11 July 2012), the requirement for contractors to prove claims is to the standard of the ordinary civil test, i.e. whether the case has been proved on the balance of probabilities, they are not required to be demonstrated to say a criminal standard as it would appear to be case adopted by many employers and their agents.

Similarly, Walter Lily confirms at para 467 that Architects and Quantity Surveyors engaged by the Employer are not strangers to the project regarding the information that needs to be provided to them. Effectively, Walter Lily requires the Employer’s persons to assess matters in any event and not simply to deny claims for an alleged lack of information. After all is that not what the Employer paid it for?

Whilst there is no definitive list of recoverable heads of loss, the general principles are limited to a number of heads of claim:

a)    Prolongation costs

b)   Finance Charges

c)    Loss of profits

d)   General Disruption

Prolongation Costs

Prolongation costs are often considered to be onsite preliminaries and may include head office overheads in certain instances. These are usually unavoidable costs associated with the extension of the project period. In the case of Walter Lilly, it was accepted that a simple percentage uplift or formula-based method was sufficient for a contractor to claim both its overhead recovery and lost overheads (and profit).

Finance Charges

In respect to finance charges, a contractor who has borrowed money to fund a project and is delayed by an Employer is generally entitled to recover charges as loss and expense under the contract (FG Minter Limited v Welsh Health Organisation (1980)).

Loss of Profits

Loss of Profits – this is often tied in with a loss of overheads and can be calculated based on a simple percentage. It is generally accepted that a contractor can claim for loss of profit if it can show that it has turned down the opportunity to tender on a follow-up project. In the case of Walter Lilly, the court awarded the Contractor a substantial sum as it was able to provide a schedule of work that it had declined due to its ongoing commitments with the project.

General Disruption

General Disruption occurs when the Contractor incurs costs due to the ineffective use of plant and labour from its planned use. The general principle is that a Contractor should be entitled to additional payments when the Employer hampers the works. The obligation on a Contractor is to show on the balance of probabilities that the additional costs were incurred as a result of the Employer’s variation or prevention and not to matters such as inefficient working practices caused by other issues or simply a pricing error in its tender. A relevant example could be prelim thickening. That includes the provision of additional supervisors and labour due to issues onsite.

If you have any immediate questions regarding a loss and expense claim, payment notices, pay less notices or JCT Contracts, please contact us.

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