In the realm of construction contracts, loss and expense claims serve as critical contract provisions designed to address costs incurred by contractors due to delays, disruptions, or breaches initiated by the employer.
Despite their intended function to ensure fair compensation, employers are often reluctant to pay these costs, and contractors often fail to provide a submission that demonstrates their entitlement to recover the claimed costs. In our experience, the disparity between the amount claimed by the contracting party and the amount assessed by the employing party is often due to the respective parties鈥� lack of understanding of the established principles of loss and expense.
Read on to learn what a loss and expense claim is, what types of loss and expense claims there are, when you should submit a claim, and how to ensure your loss and expense claim is successful.
Understanding Loss and Expense Claims
Loss and expense claims are submitted by contractors and subcontractors to recover the financial losses or unexpected expenses resulting from events within the employer鈥檚 control. These events can range from project delays and variations to acts of prevention and defaults by the employer or their consultants. The primary objective of such claims is to restore the contractor or subcontractor to the financial position they would have occupied had the employer鈥檚 risk event not occurred.
What Types of Loss and Expense Claims Are There?
Loss and expense claims encompass various categories, such as:
Prolongation:鈥疌ompensation for extended project durations leading to increased costs of overheads and resource utilisation;
Disruption:鈥疪eimbursement for lost productivity and increased operational costs due to interruptions in work continuity;
Acceleration:鈥疉dditional expenses incurred to expedite project completion following delays or changes;
Loss of Productivity:鈥疌ompensation for decreased efficiency or output due to external factors impacting project performance;
Termination or Damage:鈥疌laims arising from contract termination or damage.
These claims typically cover both on-site and off-site overhead costs, including labour, equipment, temporary facilities, management expenses, and head office allocations, as well as profit margins and interest on late payments.
Typical heads of costs in loss and expense claims include:
鈥� Management and staff
鈥� Plant and equipment
鈥� Site welfare and consumables
鈥� Wasted expenditure
鈥� Unproductive labour or management time
鈥� Other preliminaries
鈥� Subcontractors claims 鈥� Consultants claims
鈥� Preliminaries thickening
鈥� Increase in costs
鈥� Interests for late release of retention
鈥� Increased head office overheads
鈥� Loss contribution to overhead and profit
鈥� Interest and finance costs.
When to Submit a Claim?
Successful recovery of your loss and expense claim begins with prompt notification to the employer upon recognising that costs have, or are likely, to be incurred. Under contractual obligations such as those outlined in the JCT standard form, contractors must notify the employer promptly and provide detailed submissions of the loss and expense they occur (or are likely to occur). Monthly updates of the loss and expense claim ensure transparency and facilitate timely resolution of claim-related issues.
The key to successfully submitting a loss and expense claim is timely notification of your intention to claim and the forwarding of detailed particulars that explain and substantiate your entitlement to the claim.
You should remain vigilant and look out for early warning signs that you might need to submit a claim.
The sooner you know the need to submit a loss and expense claim, the better because it allows you to gather the necessary information and records needed to build the claim.
Ensuring a Successful Loss and Expense Claim
Successful resolution of loss and expense claims hinges on several key principles:
Compliance with Contractual Requirements:鈥疉dherence to procedural guidelines and condition precedent clauses of the contract that govern the notification, application, and assessment requirements and timelines.
Establishing Entitlement:鈥疍emonstrating contractual or legal grounds for the claim, supported by clear evidence linking incurred costs to the employer鈥檚 actions or breaches of the contract.
Substantiation of Costs:鈥疨roviding comprehensive documentation and contemporaneous records substantiating the claimed costs have been incurred. This includes detailed reports, invoices, site diaries, payroll records, progress reports, and any other relevant correspondence.
It is important to remember that the burden of proof is on the claiming party, 鈥淭hey who assert must prove鈥�.
A successful loss and expense claim must be robust enough to withstand scrutiny. You should focus on ensuring sufficient and detailed particulars that place the employing party in a position of confidence that the loss and expense claimed have been mitigated and incurred and, moreover, have been incurred because of the employer鈥檚 actions or breach of the contract. Many claims fail because of a failure to ensure these simple principles are established.
A robust and successful loss and expense claim is underpinned by four pillars:
Cause: Identify the event that gives rise to the claim and explain it (i.e., What happened?).
Effect: Explain the direct impact of the cause (i.e., When it happened? What was the impact on the works and your business?).
Entitlement: Establish the contractual (or legal) basis for the claim, citing specific clauses and precedents that support the entitlement to compensation.
Substantiation: Support the claim with comprehensive documentation, ensuring all evidence is contemporaneous, accurate, and relevant to the claim鈥檚 scope.
Tips for Success
Understand the Relevant Contract Clauses and Look Out for Condition Precedent Clauses:
Familiarise yourself with contract terms and conditions governing loss and expense claims, including deadlines, notification requirements, and procedural steps. If you fail to comply with the contract provisions in a timely manner or your notices and/or applications are defective, your claim could be doomed to fail from the outset.
Liability and quantum: In a loss and expense claim, two things must be proven: liability and the actual cost (quantum). So, once you鈥檝e worked out the liability (what the employing party did to breach the contract and resulted in additional costs being incurred by you), you also need to ensure you have the actual cost of the loss and expense. It鈥檚 very important that your quantum figure is accurate 鈥� use a quantum expert to establish if the costs are indeed loss and expense costs.
Keep good records: As mentioned above, the burden of proof is on you. Therefore, substantiation of the claim is pivotal to its success. Provide all available evidence of the claimed costs. This will include site entry/exit records, site diaries, timesheets, resource allocation sheets, invoices, internal cost reports/ledgers detailing payments made, payroll records, progress reports, photographic evidence with dates, times and locations, consultancy and subcontractor agreements and their claims and any other relevant contemporaneous correspondence, minutes or records that support the claim.
Be realistic: Understand what loss and expense is and how it was caused. A lack of understanding is often the basis of hyper-inflated and unsupported claims that serve little purpose but to damage credibility.
Seek professional help: Perhaps one of the trickiest parts of a loss and expense claim is proving the actual losses incurred and how they relate to what the employer did. To secure your best chances of a successful loss and expense claim, it鈥檚 imperative you seek professional help. The experts can not only advise you on your claim, but they can also work out the finer details to ensure you get what you鈥檙e entitled to.
Why Choose Nexus Consult to Recover Your Loss and Expense?
At Nexus Consult, we specialise in delivering favourable outcomes for loss and expense claims. With over two decades of industry expertise, our Director, Scott Coulton, provides expert guidance and support in claim preparation, assessment, and dispute resolution. Our tailored approach ensures clients receive comprehensive representation and safeguards their entitlements amidst project uncertainties.
Contact Nexus Consult today to find out more.