Evaluating Contract Claims

John Mullen, Peter Davison

• Publisher: Wiley-Blackwell
• Year: 2019
• ISBN:
  9781118917800
• Edition: 3
• Topic: Derecho
• Subtopic: Derecho urbanístico

An important guide to the quantification of contract claims in the construction industry, updated third edition

The substantially expanded third edition of Evaluating Contract Claims puts the spotlight on the quantification of claims in the construction industry after liability has been established, including by reference to the terms of several standard forms of contract in common use. The authors clearly demonstrate the potential alternative approaches to quantification, the processes, principles and standard of analysis required to produce acceptable claims for additional payment. The third edition covers a number of heads claims not considered in previous editions and offers an important guide for those working with building or engineering contracts.

Evaluating Contract Claims explains in detail how the base from which evaluation of additional payments may be established, the effect of changes on the programme of work and the sources of information for evaluation of additional payments. The book also contains information for evaluating the direct consequences of change in terms of the impact on unit rates, and evaluating of the time consequences of change in terms of prolongation, disruption, acceleration and more. This important book:

• Concentrates on the quantification of contract claims after liability has been established
• Offers a guide that is appropriate for any form of contract
• Considers the potential alternative approaches to quantification of different heads of claim
• Contains the principles and methods that should be reflected in the evaluation of claim quantum
• Includes the standard of substantiation which may be required
• Presents information that is equally applicable in both building and engineering disputes
• Is substantially expanded from its previous editions

Written for construction and engineering contract administrators, project managers, quantity surveyors and contract consultants, Evaluating Contract Claims offers a revised third edition to the essential guide for quantifying claims in the construction industry once liability has been established.

1
Introduction

It may be thought that there is enough literature on claims in the construction industry, although the continuing incidence of disputes arising from such claims suggests that recent developments in the means of addressing such problems have not eliminated contentious claims. That such disputes feed commercial courts and arbitration centres of many countries with a ready supply of cases to hear at great expense further emphasises the point. This book aims to examine the quantification of contract claims on the basis that many disputes arise from disagreement of the financial consequences of events, even where the liability for those events may not be contested.

The objective of this text is to examine various aspects of evaluating claims for additional reimbursement arising from contracts for construction projects. There is no intention to produce a legal treatise or to address the issues of establishing liability for additional reimbursement. That said, the operation of any contractual machinery relies on the express terms of that contract and the legal background. It is of course necessary to have a basis for considering how remuneration should be properly established. Whilst a few overseas judgments are also considered, this text considers the issues assuming English law applies and is therefore referred to, where appropriate, to establish relevant authorities.

Before commencing any evaluation it is preferable if the person undertaking the task understands how change and disruption to a contract can arise in a manner that requires evaluation of the financial consequences on behalf of one party or another. This chapter briefly considers aspects of the process that provide the basis for evaluation.

Succeeding chapters then go on to consider how the base from which evaluation of additional payments may be established, the effect of changes on the programme of work, the sources of information for evaluation of additional payments, the evaluation of the direct consequences of change in terms of the impact on unit rates, etc., and the evaluation of the time consequences of change in terms of such as prolongation, disruption, acceleration, etc. Some other sources of claims (such as suspension and termination) and the means of minimising the impact of claims are also considered.

The approach taken is to attempt to demonstrate the process, principles and standard of analysis that will be required to produce acceptable claims for additional payment, not to produce a guide to calculating payments under any specific form of contract. The approach does, however, provide those on the receiving end of such claims with guidance on what they should expect to receive in the form of a properly detailed claim and also how to respond to claims that are not properly supported. We have also set out alternative approaches to many of the claims considered, including some unusual and hopefully thought provoking methodologies.

1.1 The Legal Basis

This is not a legal textbook and it goes without saying that proper advice on the applicable law should always be sought before taking any contractual position based on a legal premise. There are, however, many references in the text to the decisions of the courts in relation to a number of matters, with relevant extracts from the judgments. These extracts and quotations are included to illustrate the various principles under discussion and to underline the standard of analysis and substantiation that is required for claims taken before a formal tribunal. There is no better source for this purpose than published judgments, and the standard required by the courts is the standard by which all evaluations can be judged. However, whilst English legal principles and precedents may have significance in Commonwealth countries and be of interest elsewhere, the difference particularly with codified civil jurisdictions can be marked. Local legal advice must always be sought, particularly from lawyers with experience of construction contracts and disputes. This latter criteria can, however, sometimes be difficult to satisfy in some parts of the world.

The case references and extracts are not intended to be exhaustive but are intended to provide a basis for the reader to conduct further research if he or she so wishes. Full details of cases can be obtained through the internet from sites such as the British and Irish Legal Information Institute (BAILII) (www.bailii.org). Other sites are available both free of charge and commercially.

1.1.1 Forms of Contract

The number and range of published standard forms of contract for construction works are extensive. Not only does this text not address all of the many published forms, it is not a guide to any one of the more commonly used forms. The intention of this book is to provide guidance on matters of principle that will have to be addressed under most, if not all, construction contracts under English law. That said, it is obviously useful to apply the provisions to be found in different types of contract to illustrate various points. References are therefore made in the text to the following contracts, using the abbreviations shown below, to show the way in which they deal with specific issues:

‘Infrastructure Conditions’	Infrastructure Conditions of Contract published in August 2011, Measurement Version, published by the Association for Consultancy and Engineering (ACE) and Civil Engineering Contractors Association (CECA).
‘FIDIC Red Book’	The Fédération International des Ingénieurs‐Conseil's (FIDIC) Conditions of Contract for Construction, for Building and Engineering Works designed by the Employer, First Edition 1999.
‘SBC/Q'	The Joint Contract Tribunal's Standard Building Contract with Quantities (SBC/Q), published in 2011 by Sweett and Maxwell. The successor to the previously published ‘JCT’ Standard Form of Contract.
‘NEC4‐ECC’	The Engineering and Construction Contract, Fourth Edition 2017, published by Thomas Telford Ltd. In this book references to ‘NEC4‐ECC’ are generally to its Option A: Priced contract with activity schedule.

The FIDIC Red Book and the Infrastructure Conditions are used to illustrate how contracts that contemplate complete remeasurement of the works address certain evaluation issues, internationally and in the UK domestic market respectively. SBC/Q illustrates the approach of lump sum contracts subject to adjustment under stated circumstances. The NEC Form of Contract is used to examine some of the concepts that have gained this contract increasing popularity over recent years, particularly among critics of what are considered by some to be the more adversarial traditional forms of construction contracts. For example, NEC's proactive and prospective approach to the evaluation of change and its use of actual costs, or forecast actual costs, rather than contract rates and prices, as a basis of remuneration for change.

There are, of course, many different forms of contract (both standard and bespoke) that can be adopted by the parties to a construction project depending upon, among other matters, the nature of the enterprises concerned and the nature and size of the project. To consider the detailed requirements of every standard form of contract would need a considerably larger volume than this. It would also require detailed consideration of the applicable law. It is therefore necessary to restrict the consideration to matters of principle, using the requirements of the various contracts considered in this book to illustrate particular points. That is not to say that the principles examined will not relate to other standard forms of contract, or to ad hoc contracts agreed between parties, but that the discussions herein will need to be considered in the light of specific requirements in particular contracts as well as the underlying applicable law. The prime source of information for any evaluation has to be the contract between the parties and its requirements. There is no substitute for reading the contract and any incorporated relevant documents. Regrettably, this is often a starting point more often honoured in the breach than in observance in practice. Domestically, the early use of the NEC contracts approach saw many practitioners applying the traditional approaches of such as the JCT and ICE contracts that they had grown up with, without reading what NEC actually requires them to do and when. As the NEC contracts have gained popularity internationally, many of the problems arising have been the result of practitioners applying approaches that were accustomed to conform to more traditional international forms such as the FIDIC Red Book. These included the very approaches that NEC sought to change. Internationally, many practitioners also fail to consider the applicable law and assume that the law and approaches of their home country will apply. Where such naivety and/or laziness leads to otherwise avoidable disputes is unforgivable.

The parties to a contract can of course agree additional reimbursement in any manner they wish, and can also waive the requirements of their contract if that is expedient and acceptable to both parties. This is often the case in commercial negotiations of additional reimbursement, where the parties may not wish to insist on the detailed substantiation of every component of the evaluation.

This text, however, assumes that the evaluation needs to be substantiated in detail to the standard required in formal dispute resolution procedures under English law. These are also the methodologies that the authors have found are regularly applied internationally. A theme of this book is the benefit that can be obtained by good substantiation in avoiding unnecessary disputes. Such a standard is not only necessary in the event of some form of dispute procedure but is of course the standard of substantiation required by the contract itself. This raises the question of defining the standard required in a formal dispute resolution process.

1.2 The Standard of Substantiation

While there may be many facets to the standard required, there are two general principles that should always be borne in mind:

• The first principle is that he or she who asserts must prove, i.e. the party claiming an item of damage, cost expense, loss or value, will have to support it with evidence.
• The second principle is the general standard of proof in many jurisdictions, as it is put in English law, that matters need to be established as being correct ‘on the balance of probability’. This contrasts with the standard required in criminal matters where ‘beyond reasonable doubt’ is the test under English law. This second principle might, however, be subject in practice to a ‘sliding scale’, i.e. major and central parts of the issues need to be fully substantiated while ancillary or subsidiary parts may be subject to a lesser degree of substantiation. Those minor parts may perhaps be assessed by reference to the results of the more rigorous analysis of the major parts, perhaps on a pro rata basis. If a sufficient and representative sample of preliminaries and general item costs in a prolongation claim have been agreed following detailed checking at x% of their claimed values, then it might be concluded that the unsampled costs could also be agreed at that x%.

The apparently lower standard of proof in civil matters does not imply that assertions need not be fully evidenced where it is reasonable to expect such evidence. Thus, for instance, a matter of evaluation that involves establishing the cost of materials bought specifically for a contract will require production of invoices and possibly other procurement documents (such as a matching purchase order and delivery receipt note) if relevant. Where such project‐specific support for a claimed item of cost is not possible, for instance in establishing off‐site overhead charges in a prolongation evaluation, it will still be necessary to produce evidence of the claimant's wider company overhead costs incurred, such as audited company accounts, with a reasoned analysis of the amount considered to be relevant to the claim.

This introduces the two tiers of evaluation common to most change items: its direct consequences in terms of the value of the physical work done and its time consequences in terms such as delay, disruption and acceleration. In many instances the evaluation may require only one or the other but in many cases both tiers will be necessary.

The level of substantiation for the evaluation may vary depending upon the particular instance and circumstances. As noted elsewhere, the express terms of the contract should always be a first point of reference. Local law and other author...