Formulation and Presentation of Claims 139 completing the current project (the subject of the claim). It was claimed that, due to the postponement, completion of the work was delayed from 20 May 1990 until 25 November 1990, and that the delay prevented the con- tractor from carrying out the second project at Tollerton. The contractor claimed that, due to the overrun, he lost an opportunity of carrying out the second project which would have contributed to overheads.
formula was employed as a means of calculating the head office overheads. This argument was rejected by the arbitrator, who was not convinced that the suspension resulted in the contractor being unable to work at the second project or elsewhere.
The contractor's alternative claim was for the recovery of head office overheads actually expended. The arbitrator was satisfied that the head office costs were related to the works for the delay period. The contrac- tor's method of calculation was:
'to extract from the company's account the overhead costs excluding fixed costs not related specifically to progress on the site directors' remuneration, tele- phone, staff salaries, general administration, private pension plan, rent, rates, light, heat and cleaning and insurance to express such annual costs as weekly averages for both 1990 and 1991, and multiply the resulting weekly averages by the period of overrun in each year and thus produce a figure referred to as The total overheads for the period of delay and to be allocated between the delayed project and other work being undertaken at the same time was calculated as follows:
Value of work at
Total overheads (C) = Amount claimed Total value of work
The above formula contains a variant of the Eichleay formula and the method described using Figure 5.19.
The employer argued that the arbitrator had erred in law because he had awarded costs which would have been incurred by the contractor in any event and could not therefore be classed as direct loss and expense.
The court found in favour of the contractor with the following observations:
'All these observations like those of Lord Lloyd in Ruxley, of Forbes J in Tote and Lyle, and of Sir Anthony May in Keating all suppose, either expressly or
implicitly, that there may be some loss as a result of the event complained of, so that in the case of delay to the completion of a construction contract there will be some "under recovery" towards the cost of fixed overheads as a result of the reduced volume of work occasioned by the delay, but this state of affairs must of course be established as a matter of fact. If the contractors overall busi- ness is not diminishing during the period of delay, so that where for example,
140 Construction Contract Claims
as a result of an increase in the volume of work on the contract in question arising from variation etc., or for other reasons, there will be a commensurate contribution towards the overheads which offsets any supposed loss, or if, as a result of other work, there is no reduction in overall turnover so that the cost of the overheads continues to be met from other sources, there will be no loss attributable to the delay.'
It will be seen from Figure (supra) that by comparing anticipated turnover with actual turnover (e-e) on a delayed project, the volume of work ought to fall below the anticipated turnover. That is precisely what the court was saying in the above observation.
Problems occur when the cause of delay is a suspension order which applies to the whole, or a substantial part of the works. It is self-evident that the above method would produce a result of zero if all of the works were suspended and no costs were allocated to the project. Nevertheless, fixed head office resources would have to be covered by a contribution from the delayed project. It is possible that no management time would in fact be spent on the delayed project. However, this does not mean that more management time is spent on other projects. Management resources would not be expended on the delayed project (so, in theory, there would be no cost which could be allocated to the delayed projects) thereby making it impossible to justify a claim based on costs as required in Tate Lyle v. GLC (supra). It must be reasonable to argue that the loss of contribution to overheads should be recovered from the delayed project on the grounds that the contractor's head office resources could not earn the shortfall in contribution on any other project.
Numerous variations to the recognised formulae may be appropriate. In Finnegan v. City Council (supra), the contractor argued (unsuc- cessfully) that the percentage to be used in the formula should be based on a notional contract and the contractor's direct labour cost (excluding su contractors).
In summary, it is suggested that, unless there are compelling reasons to modify one of the formulae, no adjustment should be necessary when cal- culating the loss of contribution to overheads (and profit). In most cases, formula, or Eichleay's formula, are preferable to Hudson's formula.
Adjustment for overheads and profit in variations
Many practitioners argue that any recovery of overheads and profit in vari- ations should be deducted from the overheads and profit included in a claim for prolongation. This may be the case in the event of all of the variations being the cause of all of the period of delay. It may not be the case where some (or all) of the variations can be executed within the contract period
Formulation and Presentation of Claims 141 or they do not cause delay. (See also The Presentation and Settlement of Contractors' Claims by Geoffrey Trickey at pages and
For example, if variations were executed during a period when there was no delay, the contractor would be paid for them at rates which would include additional overheads and profit. If the contract was to complete on time, no adjustment would be made (but see Variations, infra). Therefore, if (after completion of all varied work) there should be delay for another reason (such as suspension), the overheads and profit recovered for this delay (using a formula) would be the appropriate measure of damages for the period of suspension and should stand on its own without adjustment for the over- heads and profit recovered in the variations. Similarly, if variations are exe- cuted concurrently with other recoverable delays, if it can be shown that they could have been incorporated within the contractor's programme (in the event that the other recoverable delays did not occur) then they may also be discounted and no adjustment made.
In short, any variations which do not cause the delay which is the subject of the prolongation claim may be ignored when making any adjustment for overheads and profit. Conversely, if a variation is the cause of a claim for prolongation, an adjustment should be made.
However, if formula has been used to calculate the overheads and profit during the period of prolongation, the percentage to be used in the adjustment may not be the same as that used in the formula. It should be that percentage which was included in the contractor's tender.
Adjustment for non-recoverable delays
Some delays, such as exceptionally adverse weather conditions, do not qualify for additional payment. Where such delays occur in isolation, it is a simple matter to ignore the period of delay in any calculation of prolonga- tion costs (see Figure 5.20). Where such delays occur in parallel with recov- erable delays, reimbursement will depend on the particular circumstances of the case (see Concurrent delays, infra).
It should be remembered that where a contractor has been forced into a period of adverse weather by a variation, or other qualifying recover- able delay, it may be entitled to reimbursement (Fairweather v. London Borough of Wandsworth, supra). In these circumstances the adverse weather conditions need not be exceptional in order to qualify for an exten- sion of time and additional payment.
Concurrent
A single cause of delay often presents no problem when dealing with pro- longation claims. However, in practice, many delays occur at the same time.
Formulation and Presentation of Claims 143 Previous examples have illustrated the difficulties which arise when consid- ering extensions of time in such circumstances. The situation is far more complicated when deciding whether, or not, the contractor is entitled to additional payment. There are no easy solutions to the wide variety of prac- tical problems which arise when more than one cause of delay is affecting the progress of the works at the same time. Some delays will qualify for additional payment, whilst others, such as adverse weather conditions (which may qualify for an extension of time) and culpable delay by the con- tractor, will not normally qualify for additional payment.
Contractors are unlikely to offer any concession for concurrent delays when putting forward a claim for prolongation. They cannot be blamed for that (see Negotiation
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Chapter 8). The following notes assume that the author of the claim is impartial and is attempting to establish what is rea- sonable reimbursement in the circumstances.The law applicable to the rights of the parties to damages in the event of concurrent delay is complex. In Keating on Building Contracts, fifth edition (pages the author discusses the various options which may apply, taking the view that whilst the law appears to be unclear, in the majority of cases, the dominant cause of delay should be the deciding factor. This has been established in cases of exception clauses used in policies of insurance: Leyland Shipping Company v. Norwich Union Fire Insurance Society AC 350. It does not appear to be applicable to contracts generally. However, this may sometimes be the case where the facts are clear and the interaction of the various delays are relatively simple to determine.
It is submitted that the 'dominant delay' principle is generally inappro- priate for the majority of construction delay claims (with some exceptions). This appears to be supported by the judgement in the Fairweather case.
If the responsibility for delays can be divided according to the circumstances, apportionment may be appropriate. If it is impossible to disentangle the causes and effects of the delays, the claim may fail entirely: Government of Ceylon v. Chandris 3 All ER 48. If the competing causes of delay are in parallel, only nominal damages may be appropriate:
gie S.S. Co. v. Norwegian Government AC 292.
The following guidelines may be applicable in circumstances where more than one delay is affecting the progress of the works during the same period of time:
where the non-recoverable delay is on the critical path and the qualify- ing recoverable delay is non-critical, no reimbursement should be permitted;
where the non-recoverable delay is non-critical and the qualifying recov- erable delay is on the critical path, reimbursement should normally be permitted;
5
FIRST CRITICAL PATH