last week (or things you should now understand) · 2017. 5. 30. · loss and/or expense arising...
TRANSCRIPT
D39PZ: Procurement and Contracts 1
...last week (or things you should now understand)
the difference between the Date for Completion and the
Completion Date
the SBC/Q process by which the Date for Completion /
Completion Date can be changed (i.e. “Adjustment of the
Completion Date”) to award an “extension of time.”
the situations under which an extension of time would be
granted
the nature and contractual purpose of Relevant Events
the nature and purpose of Liquidated Damages
2
Unit 10: Contract Administration:
Loss and Expense
2
D39PZ: Procurement and Contracts
D39PZ: Procurement and Contracts 3
Claims for loss and/or expense
Claim submission procedure
Claim assessment procedure
“Heads of Claims”
D39PZ: Procurement and Contracts 4
“Claims?” SBC/Q does not accommodate “claims”
other than insurance claims*
Application for payment of
Loss and Expense (cl. 4.23) SBC/Q allows the Contractor to make an application for payment
of loss and/or expense
cl. 1.10.1 (Effect of FInal Certificate) does mention “claims” - it shouldn’t
D39PZ: Procurement and Contracts 5
In practice:
“Claim” =
Application for payment of
Loss and Expense
We will adopt industry use of the word “claim” to represent
an application by the Contractor for payment of Loss
and/or Expense.
Note that a “claim” relates to money only - not time.
D39PZ: Procurement and Contracts 6
Claims for loss and expense
Claims:
are submitted to the Employer by the Contractor
are requests for additional payment due to:
the Employer’s non-material breach of the Contract due to:
o action (or inaction) of the Employer (or its agents)
o action (or inaction) of parties brought to the project by the
Employer
are the Contractor’s request(s) for payment of loss and
expense it did not expect to encounter.
are often associated with delays or variations
D39PZ: Procurement and Contracts 7
Claims for loss and expense
Claims may arise for several reasons, including:
delays and extensions of time
disruption caused by the Employer or it’s agents
variations to the Contract
changes to the nature of the project
Overall, claims arise when the Contractor is required to
perform work (or perform work using a method) that was
not anticipated when the Contract was agreed.
D39PZ: Procurement and Contracts 8
Claims for loss and expense
Claims are often viewed negatively - this should not be the
case.
If the Contractor has genuinely incurred loss and/or expense
due to the Employer’s actions, then they should be able to
recover these costs.
SBC/Q gives the Contractor the right to recover these costs.
Contractors are fully entitled to submit claims, provided
that:
they are not spurious
they are submitted in accordance with the requirements of
SBC/Q.
D39PZ: Procurement and Contracts 9
Claims principles
Claims are a form of damages, but it is important to note:
Liquidated damages (for example):
o The Contractor compensates the Employer to cover the Employer’s
costs incurred due to late completion.
o The Contractor is in non-material breach.
Claims for loss and expense:
o The Employer compensates the Contractor to cover the
Contractor’s unexpected costs incurred due to the Employer’s
actions (or inactions).
o The Employer is in non-material breach.
D39PZ: Procurement and Contracts 10
Claims principles
The process by which the Contractor must submit a claim
for loss and expense is defined by cls. 4.23 to 4.26.
Although the Contract makes the submission of a claim possible, the
Contractor's right to adjudication and litigation still remains (cl. 4.26).
The Contractor’s right to submit a claim arises from the
Employer’s non-material breach of the Contract.
The Employer will settle the claim by paying damages to the Contractor to
return it to the position it would have been in had the Employer’s breach
not occurred.
In other words, the Contractor’s unexpected costs will be paid by the
Employer.
D39PZ: Procurement and Contracts 11
Claims principles
The Contractor cannot claim for loss and expense arising
from:
its own actions; or
events that could not be foreseen by either party. o Recall that many Relevant Events justifying an extension of time cannot be foreseen
(and cannot, therefore, be mitigated by either party).
D39PZ: Procurement and Contracts 12
Extension of time vs. Loss and expense
There is no direct link between extensions of time and
claims for loss and expense
Extensions of time:
Granted if a Relevant Event occurs that requires the Contractor to be
given more time to complete the Works.
Loss and Expense:
Claims for payment are made by the Contractor to recover unexpected
loss or additional expenditure due to delay or disruption caused by others.
An extension of time does not always justify a claim.
D39PZ: Procurement and Contracts 13
Types of claim
Contractual claims
Follow the procedures defined by the Contract o Usually settled quickly and simply
Common law claims
Result from breaches of implied Contract terms
o Can be recovered using the Contract or litigation
Quantum meruit claims
If no prior agreement of cost
Ex gratia claims
D39PZ: Procurement and Contracts 14
Limitations on entitlement
Contractors can only claim for:
Loss and/or expense arising from a Relevant Matter
o Note: Relevant Matters ≠ Relevant Events
Loss and/or expense which cannot be recovered by other
contractual means (cl. 4.23).
Costs incurred by the Contractor when working in a reasonable
manner.
o The Contractor must have taken all reasonable steps to avoid
additional costs.
D39PZ: Procurement and Contracts 15
Relevant Matters vs. Relevant Events
Relevant Events justify additional time
Relevant Matters justify additional payment
Relevant Events include uncontrollable circumstances.
Relevant Matters do not
The Contractor cannot be expected to recover costs from the Employer
caused by an event that neither party could control
D39PZ: Procurement and Contracts 16
Relevant Matters
Cl. 4.24 defines the Relevant Matters as:
Relevant Matter Clause number
Variations cl. 4.24.1
Postponement of the Works or instruction
to spend an undefined Provisional Sum
cl. 4.24.2.1
Inspection of the Works cl. 4.24.2.2
Contradictions in the Contract Documents cl. 4.24.2.3
Dealing with antiquities found on site cl. 4.24.3
Inaccurate Approximate Quantities cl. 4.24.4
Action (or inaction) of the Employer
or it’s agents
cl. 4.24.5
Relevant Events Caused by? Relevant Matters 2.29 .1 Variations Employer 4.24 .1 Variations
.2 CA's instructions to: .2 CA's instructions to:
.2 .1 correct a discrepancy in the Contract Documents
(cl. 2.15);
Employer .2 .3 correct a discrepancy in the Contract Documents
(cl. 2.15)
.2 .1 postpone part of the Works (cl. 3.15); Employer 2 .1 postpone part of the Works (cl. 3.15);
.2 .1 execute work represented by an undefined
Provisional Sum (cl. 3.16);
Employer .2 .1 execute work represented by an undefined
Provisional Sum (cl. 3.16);
.2 .1 completing works that would have been under a
Schedule 2 Quotation had the Contractor not
objected to it being so (cl. 5.3.2)
Contractor
.2 .2 opening up of works for inspection if work found
to be in accordance
Employer .2 .2 opening up of works for inspection if work found
to be in accordance
.3 deferment of possession of the site Employer
.4 discovery of antiquities on the site (cls. 3.22.1,
3.22.2)
Neither .3 discovery of antiquities on the site (cls. 3.22.1,
3.22.2)
.5 execution of work described by an inaccurate
Approximate Quantity
Employer .4 execution of work described by an inaccurate
Approximate Quantity
.6 suspension of the Works by the Contractor due to
non-payment
Employer
.7 actions or inactions of anyone employed by the
Employer
Employer .5 actions or inactions of anyone employed by the
Employer
.8 actions of a Statutory Undertaker Neither
.9 exceptionally adverse weather conditions Neither
.10 loss or damage caused by a Specified Peril Neither
.11 civil commotion, terrorism Neither
.12 strike Neither
.13 a change in Statute directly affecting the Works Neither
.14 force majeure Neither
D39PZ: Procurement and Contracts 18
Claims for loss and/or expense
Claim submission procedure
Claim assessment procedure
“Heads of Claims”
D39PZ: Procurement and Contracts 19
Claim submission procedure
D39PZ: Procurement and Contracts 20
Claim submission procedure
Procedure is defined by cl. 4.23
Contractors must:
Submit all claims in writing as soon as the Contractor becomes aware that
“regular progress has been or is likely to be affected” (cl. 4.23.1)
Submit full documentation of the sources of the costs claimed (cl. 4.23.2)
Provide additional information if requested by the CA or QS to value the
amount of damages due (cl. 4.23.3)
Submit claims to the CA rather than the QS
D39PZ: Procurement and Contracts 21
Supporting a claim
The Contractor must support every claim with full and
detailed records, including:
relevant Contract Documents;
references to relevant contract conditions
master programme
the Contractor’s own routine records
o including the Clerk of Works’ certification of their accuracy (but not
their validity)
the Contractor’s additional records specific to the claim
D39PZ: Procurement and Contracts 22
Claims for loss and/or expense
Claim submission procedure
Claim assessment procedure
“Heads of Claims”
D39PZ: Procurement and Contracts 23
Claim assessment procedure
After submission, a two-step process ensures the
magnitude of a claim does not affect its validity
Validity is determined before magnitude (quantum) is considered.
Step 1: Determination of validity
Validity of the claim is determined by the CA
A claim is valid if the loss and/or expense is caused by a
Relevant Matter
The amount of the claim is not considered
D39PZ: Procurement and Contracts 24
Claim assessment procedure
Step 2: Determination of quantum
After validity is established, the amount of damages the Employer must
pay is ascertained
Usually assessed by the QS on the CA’s behalf
QS must take an impartial view
Amount of
damages =
QS’s ascertainment of
the reasonable cost of
completing the Works
in disrupted or delayed
circumstances
-
The cost of
completing the
Works included
in the Contract
Sum
D39PZ: Procurement and Contracts 25
Claims for loss and/or expense
Claim submission procedure
Claim assessment procedure
“Heads of Claims”
D39PZ: Procurement and Contracts 26
The “Heads of Claim”
The documentation submitted by the Contractor to support
a claim is called the “Heads of Claim”
See example provided
The Heads of Claim must clearly state the loss and/or
expense arising due to each Relevant Matter.
“Global” claims will only be accepted if costs cannot be isolated.
D39PZ: Procurement and Contracts 27
The “Heads of Claim”
The Heads of Claim must document:
Additional preliminaries costs
Reduced labour productivity
Extra waste or unused materials
Increase in the cost of resources (e.g. inflation)
Extra head office overheads and profit required
Additional finance charges
Correspondence, site meeting, photographs, etc.
D39PZ: Procurement and Contracts 28
The “Heads of Claim”
Head office overheads & profit
A formula was
traditionally used to
calculate these
indirect costs.
Case law now
discredits this
approach.
It was held that
“ascertain” means
“to find out for
certain.”
D39PZ: Procurement and Contracts 29
The “client’s QS” and claims
The client’s QS becomes involved in the settlement of a
claim when instructed by the CA to ascertain its quantum.
This raises issues of bias, given the QS’s employment by
the Employer.
In the pre-contract phase, the client’s QS must act solely
in the Employer’s interests.
In the post-contract phase, the client’s QS must perform
the duties prescribed in the Contract.
The client’s QS has duties to the Employer and the Contractor.
D39PZ: Procurement and Contracts 30
The “client’s QS” and claims
When asked to ascertain the quantum of a claim, the
client’s QS:
is duty-bound to find out the actual loss and/or expense incurred by the
Contractor due to the Relevant Matter
has a duty to ensure the Contractor is paid no less than it is due.
In practice, “ascertaining” the quantum of the claim is a
balance between valuation and negotiation.
It can, and often does, lead to disputes.
D39PZ: Procurement and Contracts 31
Remember to read the full Unit notes and Appendices,
and complete your independent study