Loss and Expense Claims from Delay and Disruption: A Strategic Guide

When preparing a claim for loss and expense, it's essential to understand that a "claim" is, at its core, a demand for something owed. In the context of construction, varied works and disruptive events may require a contractor to execute tasks outside the original scope, in a different sequence, with alternative methods, or even with increased resources to accelerate progress. When such events occur, the first step is to identify the types of losses incurred or likely to be incurred and to develop a strategy for recovering these losses if they cannot be mitigated.

Before valuating any claim for loss and expense, claimants must primarily refer to the provisions of the contract. For instance, in the FIDIC Red Book, the term "Cost" often includes "plus reasonable profit" regarding claimable prolongation costs. However, the Society of Construction Law's Delay and Disruption Protocol advises that compensation for prolongation should only cover work actually done, time actually taken, or loss/expense actually suffered. In essence, compensation should be based on the actual additional costs incurred by the contractor.

Typically, a loss and expense claim may include costs such as:

• Staff and Administration: This encompasses staff salaries, travel costs, employer contributions like redundancy funds, annual leave, superannuation, and insurance.
• Site Facilities: Costs may include temporary offices, utilities, HSE & PPE equipment, sanitary accommodations, and welfare facilities.
• Plant Items: This covers craneage, small plant and tools, general site equipment, testing equipment, and waste removal.
• Temporary Works & Access: Expenses might involve site roads, temporary electrics, and water supply.
• Head Office Staff Costs: Only the proportion of time spent on the project to which the claim relates is typically claimable.

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Disruption Costs

Disruption, typically claimed separately from critical delay, refers to a delay in an individual activity not on the critical path that does not impact the overall completion date. Disruptions can arise from additional works, reduced access, restricted working conditions, or re-sequencing to mitigate potential losses.

Once established, disruption always results in a direct, measurable financial consequence, even if concurrent or co-contributory culpable factors are involved. It's important to note that a contractor can incur additional costs from disruptions even if there is no delay to the project, and such additional expenses are claimable.

However, disruption claims are notoriously difficult to prove, as productivity losses can be challenging to identify and quantify during the period they arise. Unlike other monetary claims, which often relate to distinct events with clear consequences (e.g., a variation instruction), disruption claims rely heavily on contemporaneous records to establish a causative link between the disruption and the losses. The claimable costs in a disruption claim are those that, but for the actions of others, would not have been required.

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Delay Costs

Disruptive events can lead to critical delays in the work, potentially resulting in losses such as an employer's deduction of Liquidated Damages. When these delays are due to factors beyond the contractor's control, it may seek an Extension of Time (EOT) and claim the associated prolongation costs. Time-related expenses—such as site establishment, on-site management, and resources—will often increase if their presence on the project is prolonged, and such costs are typically claimable.

There is always a debate about whether a contractor should first obtain an EOT before claiming delay-related costs. Some believe an EOT claim should precede a prolongation claim, while others argue that it’s not necessary to have an awarded EOT before claiming loss and expense. Despite this, securing an EOT first is often convenient, as the evidence supporting an EOT is typically similar to that required for a loss and expense claim—though it won't establish the claim's quantum.

When assessing the quantum of prolongation compensation, reference should be made to the period during which the employer event risk or disruption was felt, rather than the extended period at the contract's end.

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Mitigation Measures

Before making the below points, I must emphasise that I’m not a legal practitioner. Nonetheless, case law clearly establishes that parties affected by disruptive events have a duty to implement appropriate mitigation measures to minimize potential losses. Key principles of mitigation include:

• A party cannot recover damages for any loss they could have avoided but failed to avoid due to unreasonable action or inaction.
• Where the market offers options to minimize losses, the claimant should take reasonable steps to avail themselves of these options.

Mitigation is a common law doctrine grounded in fairness and common sense. Generally, a claimant cannot recover losses that could have been reasonably avoided. Examples of potential mitigation measures include re-sequencing the order of works or introducing acceleration measures, such as mobilising additional resources to expedite work completion within a changed environment. Both re-sequencing and acceleration, however, often incur additional costs.

If a contractor can demonstrate that they were forced to re-sequence or accelerate their works to mitigate losses caused by others, they may be reimbursed for any additional costs incurred. It’s important to recognise that acceleration measures, while potentially reducing delay, can also lead to productivity losses due to factors like overtime work, out-of-sequence tasks, and site overcrowding. Therefore, parties must carefully consider whether such measures are appropriate and effective in meeting contractual obligations.

A contractor’s voluntary decision to accelerate is not enough to justify a claim for constructive acceleration. There must be an element of influence by the employer or an event outside the contractor's control that compels them to accelerate. However, to claim acceleration costs, a claimant typically doesn't need to prove that the effort was successful; it is usually sufficient to show that a reasonable attempt to mitigate delays by accelerating the works was considered, and that this effort resulted in additional costs.

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Presentation of a Cost Claim

When presenting a cost claim, it's essential to back up each claim with organised documentation and evidence, categorised by area, activity, or period.

Additionally, the claimant must clearly establish:

• Entitlement to make a claim, and
• Causal links between the events and the resulting losses.

Failing to do so may jeopardise the entire claim.

In cases where records are poor or the disruptive events are extremely complex, a global claim may be acceptable, though it is generally more vulnerable to challenge. A respondent may argue that the disruption was partly due to the claimant's own actions, which could lead to the entire global claim being dismissed. Therefore, it's always wise for a claimant to consider their own inefficiencies when preparing a claim.