INTRODUCTION

It is common for the parties to a building contract to default in their respective

obligations to each other. Examples of contractors breach of contract are:
i.

Late completion;

ii.

Defects or non-compliant works;

iii.

Failure to comply with instructions, etc.

The contractor is liable for the consequences of such breaches and the employer is
entitled to damages. As a result the contractor may incur additional expenses and/or
losses which he wants to be compensated
The contractor can pursue his rights to any loss and/or expense suffered due to the
employers default by making a claim against the employer.
Basically three types of claims:
1. contractual claims;
2. extra-contractual claims;
3. ex-gratia claims

Direct Loss and/or Expense

Direct means the direct consequence of the act giving rise to the claim. The loss
and expense cannot be costs arising from indirect, remote, consequential or
contributory causes.
Loss and/or Expense may arise:

If the work is disrupted / affected / delayed due to certain specific causes or

events.
Due to the Employers own breach of contract i.e. delay and/or non-payment,
wrongfully termination of contract, etc.

Standard Forms of Contract

Most standard forms of contract allow L&E to be claimed by the contractor and for
the architect/contract administrator to ascertain them for payment by the Employer.
Clause 24.0 PAM2006, provides a comprehensive contractual mechanism for the
contractor to recover any L&E he might have incurred.

The architect role in an extra-contractual claim is different when compared to

contractual claims, whereby he is not required under the law to be impartial or to
make fair valuations, unlike in a contractual claim. He is to seek the best settlement
for the employer.

Ex-Gratia
If the contractor has no legal basis to pursue a contractual and/or extra-contractual
claim for the L&E, or if his claim is unsuccessful, he can make an ex-gratia claim.
Such claim has no valid legal basis and is often based on grounds of undue hardship,
where the contractor has suffered loss with no grounds for recovery.
Payment by the employer is:

strictly discretionary,
made on a goodwill basis or
On moral grounds or generosity.

The employer is not obliged to entertain or make payment. But if he promise or

agree to pay, then he is bound by the agreement or promise. The contractor has a
legal right to recover the sum due based on the agreement or promise.
In ex-gratia claims, only the parties to the contract are empowered to settle ex-gratia
payments. The architect has no such power unless empowered by the employer.

Procedures of Claim
Most standard forms of contract provide for a written notification for loss and
expense claim, where the contractor shall notify the architect rather than the
Employer of its L&E claim.
A written notice of claim or application by the contractor is often a precondition to
ascertainment and certification by the architect for payment. Lack of notice on L&E
claim is often fatal.
The main basis for an L&E claim under clause 24.1 is the regular progress of the
works has been or is likely to be materially affected by matters referred to in clause
24.3.

Typical Heads of Claim

Site Establishment Costs
1. Supervisory and Administrative site staff
2. Security
3. Plant
4. Health and Welfare including cleaning
5. Lighting & power
6. Sheds and other temporary works
7. Offices and mess room
8. Rates & rental on temporary buildings
9. Architect/consultants/clerk of works site office
10. Sanitary accommodation
11. Contractors temporary telephone
12. Remove rubbish & tidy site
13. Scaffolding

Head-Office Overheads
1. Head office staff (direct involvement)
a. Project Director
b. Contract Manager
c. Planners, buyers, coordinators, progress staff
d. Clerical staff
2. Head office upkeep (apportioned)
a. Company offices, rents, rates.
b. Plant yards
c. Running costs / maintenance costs
d. Expenses, including office equipment, postage, telephones and the
like.
e. Costs of travelling including allowances for companys motor cars, etc.
f. Professional legal / accountancy fees.
g. Depreciation
Loss of Profits
1. Delays and Disruption
Loss of Profits, which would otherwise have been earned if not for the delay
or disruption.
2. Wrongful Termination

Loss of Profits, which would have been earned if the Contractor had been
allowed to complete the contract works.

Disruption Costs

Increased expenditure arising from delays and disruption:

Additional labour and plant employed;
Idling or under-productive plant and labour, i.e. loss of productivity.

1. Labour

Loss of productivity (Labour resources must have been available and able to
have been used profitably, elsewhere, had the loss of productivity not
occurred)
Standing time.
Overtime.
Changes in labour strength on the site and in gangs.

2. Plant
Invoices to indicate additional cost due to:

Relocation of plant, on or off site

Additional plant
Additional tools
Alteration or additions, to scaffolding
Standing time

3. Materials

Extra cost of material due to:

Double handling

Waste and damage

Return to store, or to supplier of materials intended for the works

Substitutions

Increase Costs
Additional expenditure on labour, material and plant due to increases in cost
during the period of delay and disruption.
Allowance to be made for recovery of increased costs under Fluctuation and
Variation of Price clauses in the Contract.

Financing Charges and Interest

Interest incurred on money borrowed over the period of delay or disruption.

Cost of Claim
Cost incurred and fees paid to claims consultant and/or external quantity
surveyor in preparing the claim, are generally not claimable.
Only claimable when the claim proceeds to arbitration or litigation costs follow
the event.

General
Other additional costs not reimbursable under the Contract
The above guidelines and head of claims are not exhaustive and are intended
only as a guide.