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PART 4, SECTION 2

PART FOUR: CONSTRUCTION ADMINISTRATION AND

MANAGEMENT

SECTION 2: ASCERTAINING THE AMOUNT OF LOSS AND

EXPENSE INCURRED IN BUILDING PROJECTS

Introduction
The purpose of this Section is to provide practical advice to those who are
required to ascertain the amounts due in reimbursement of direct loss and/or
expense incurred in building projects.

Surveyors are particularly reminded that their role in these matters is set out in
their building contract and is normally limited to determining quantum; it does
not usually extend to determining liability.

Reference has been made to the contract administrator throughout this

document. This reference includes architects where that function exists under
the contract.

It cannot be emphasised too strongly that the ascertainment of loss and/or

expense is an exercise in calculating as precisely as possible that which is
incurred by the contractor directly and solely due to the matters listed in the
contract. It is not an attempt to impose a penalty on an employer or design
team for failing to live up to obligations or expectations.

Equally, it is not the quantity surveyor’s role (to whom the task of
ascertainment is usually given) to seek to get away with as little a payment as
he can. The contractor, for his part, may understandably press hard for a
significant figure and on occasions overstate his case either in words or money
or both. Too often the quantity surveyor is seen, or even sees himself, as being
at the opposite end of a tug-of-war rope to the contractor. This is incorrect.
Whilst the quantity surveyor is perfectly entitled to probe such submissions by
weighing all the contrary evidence, his ultimate task is to determine a proper
ascertainment in accordance with the conditions of contract and the
circumstances that have prevailed.

4.2.1 General Principles

G 4.2.1.1 Under common law, if one party to a contract is in breach then that party is
liable to the other for damages. The level of such damages has been
established by a number of Court cases.

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G 4.2.1.2 However, the level of damages payable at common law has never intended to
act as a penalty or deterrent but simply to ensure that, in respect of the
aggrieved party, “he is, so far as money can do it, to be placed in the same
situation with regard to damages, as if the contract had been performed”.1

G 4.2.1.3 Nor are such damages intended to recompense the aggrieved party for all
losses whatever their nature. In the case of Hadley v. Baxendale2 it was
established that damages ought to be of a kind which “should be such as may
fairly and reasonably be considered either arising naturally, that is,
according to the usual course of things, from such a breach of contract itself,
or such as may reasonably be supposed to have been in the contemplation of
both parties, at the time they made the contract, as the probable result of the
breach of it”.

G 4.2.1.4 Where building contracts contain clauses dealing with the entitlement of the
contractor to recover direct loss and/or expense for any delay or disruption to
the regular progress of the Works caused by the client or his team or other
designated causes, such clauses have been developed against this general
background.

G 4.2.1.5 There are important distinctions to be drawn between the express provisions
in a form of contract on the recovery of direct loss and/or expense, and
recovery of damages at common law. In the case of the former the
requirements laid down in the contract must be rigidly adhered to; if they are,
then reimbursement is a contractual entitlement and does not require
judgement of the Court or an arbitrator.

G 4.2.1.6 The provisions of the loss and/or expense clauses are generally without
prejudice to any other rights and remedies which the contractor may possess,
and which he may wish to pursue through arbitration or the Courts. This
consideration is, however, outside the scope of this Section of the Handbook.

G 4.2.1.7 To determine the contractor’s entitlement one must calculate the difference
between the costs arising from the application of the following two questions:

(a) What is the reasonable cost of carrying out the particular element of work
in the delayed or disrupted circumstances that were created directly as a result
of the matter under consideration (for example late instructions)?

(b) If that delay or disruption had not been so caused what would those costs
have been?

G 4.2.1.8 An element of judgement and even conjecture is almost always inevitable in

answering the second question; and judgement may indeed be involved in
answering the first question, for even if there are verified cost records of the

1 Robinson v. Harman (1848) 1 Ex.850

2 Hadley v. Baxendale (1854) 9 Ex. 341

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work that was carried out it does not follow necessarily that all such costs were
properly incurred.

G 4.2.1.9 Thus, even if the form of contract refers to ‘ascertaining’ the loss – as does the
JCT form (see G 4.2.1.13) – complete proof in the way of invoices or
verified cost records is unlikely to be available. Indeed, as outlined elsewhere
in this Section, the surveyor is not required to establish ‘complete proof’ but
is instead required to use professional judgement. This should not, however,
detract from the critical importance of ensuring that proper and reasonable
records are maintained by the contractor and contract administrator.

G 4.2.1.10 The primary purpose of this guidance is not to provide a legal treatise on the
matter of claims but to provide practical comment on how to go about
determining, as reliably as possible, the contractor’s monetary entitlement.

G 4.2.1.11 The correct ascertainment of the amount of any direct loss and/or expense to
be reimbursed to the contractor requires sound knowledge and experience of
building practice, careful study of the conditions of the relevant contract and
an understanding of their legal application, together with knowledge of the
relevant and up-to-date case law. In addition, the person undertaking the
evaluation requires access to the best records and other information that is
available on that particular contract.

G 4.2.1.12 The principles referred to are generally applicable to all cases where a
contractor is entitled, by the conditions of contract, to reimbursement of his
direct loss and/or expense. This entitlement is provided in most, but not all,
forms of building contract, even where the expression ‘direct loss and/or
expense’ may not be used.

G 4.2.1.13 This guidance is based predominantly upon the provisions of the 1998 edition
of the Standard Form of Building Contract, published by the Joint Contracts
Tribunal – referred to as JCT 98. The wording used in the form is either
identical, or very similar, to that adopted in many of the other forms published
by the JCT, for example the Works Contracts used in association with the JCT
Standard Form of Management Contract and the JCT Standard Form of
Building Contract with Contractor Design.

G 4.2.1.14 It should be noted that in this text extracts from printed forms are frequently
paraphrased. Readers therefore should in all cases check the precise wording
used in the particular form with which they are involved in practice,
particularly where the form is not one of those promulgated by the JCT. It may
even be that, although a JCT Standard Form has been used, particular clauses
have been amended.

G 4.2.1.15 Following the terminology used in the JCT forms, an event or failure which
gives the contractor grounds for seeking reimbursement of any resultant loss
and/or expense is referred to as a ‘matter’; whereas an event or failure which

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PART 4, SECTION 2

gives the contractor grounds for seeking an extension of time for the
completion of the works is referred to in this Section as an ‘event’ (also
see G 4.2.3.2).

4.2.2 Definitions
G 4.2.2.1 LOSS AND/OR EXPENSE

Any monies which a contractor has a proper expectation of receiving but has
not received and/or monies properly expended or to be expended by him.

G 4.2.2.2 DIRECT

“The direct consequence of the act giving rise to the claim”,1 or “that which
flows naturally from the breach, without other intervening cause”.2 Clearly
this word ‘direct’, when used in conjunction with the words ‘loss and/or
expense’, is a very restricting one and disqualifies all costs and/or expenses
that do not arise as a direct result of the matter under complaint. Thus, any
costs due, for example, to mismanagement, to other causes not recognized as
matters by the wording of the contract or to other concurrent delays should be
excluded from those reimbursable to the contractor as they are not the direct
result of the matter under consideration.

G 4.2.2.3 ASCERTAINMENT

The definition of this word should be seen in the context of the subject of the
ascertainment. Given that judgement is almost always called for (see G
4.2.1.5 and G 4.2.1.6) it follows that ‘to ascertain’ can rarely mean to prove
comprehensively with invoices and records but rather to establish by the use
of such facts as are available and by the use of expert judgement.

4.2.3 Entitlement
G 4.2.3.1 LIMITATIONS

Appendix D provides a checklist of items on which entitlement is allowed

under JCT 98.

The contractor’s entitlement to reimbursement under the terms of the contract

should be determined as set out below:

(a) The loss and/or expense must arise directly as a result of one of the matters
referred to under the terms of the contract. Such matters do not usually extend
to the contractor underpricing the rates to be used in valuing variations. Thus,
losses arising from any such underpricing are not usually reimbursable.

1 A & B Taxis Ltd v. The Secretary of State for Air (1922) 2KB 328
2 Saint Line Ltd v. Richardson Westgarth & Co (1940) 25 BLR 140 refers to the case only in passing

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(b) Indirect costs – i.e. costs not arising directly as a result of the matter under
consideration – should be excluded. In this respect the link between cause and
effect is a vital factor.

(c) Costs incurred in respect of which the contractor has not compelled with
the conditions laid down in the contract in relation thereto cannot be dealt with
under the terms of the contract (but see G 4.2.1.6). For example, JCT 98
requires the contractor to make an application in writing to the contract
administrator as soon as it is reasonably apparent that disruption will occur as
a result of a matter referred to in clause 26 of that contract (or under clause 34
in the case of loss and/or expense arising from the discovery of antiquities).
For the contractor to be able to obtain reimbursement in accordance with the
contract he must first have complied with that provision (see G 4.2.3.3 for
more detailed advice on the validity of written applications).

(d) Reimbursement is restricted to loss and/or expense which the contractor is

not entitled to recover under any other provision of the contract. For example,
the payments made to the contractor may include allowances for working
under changed conditions, fluctuations in prices, or preliminaries associated
with variations. None of these costs should therefore be duplicated in an
ascertainment of loss and/or expense under clause 26.

(e) It is important to consider the mitigation of loss and/or expense. To the

extent that any part of the loss and/or expense incurred could reasonably have
been avoided by the contractor taking reasonable steps, that amount would not
be reimbursable. This requirement to mitigate requires the contractor to act
reasonably in all the circumstances. It may be reasonable, for example, for a
contractor to bring additional plant or labour to a site in order to reduce the
overall effect of a matter on the project as a whole. Even where such an act
was not entirely successful the contractor would be entitled to the
reimbursement of the costs incurred provided that he acted reasonably in so
doing. It is important, therefore, that in reviewing with hindsight what was
reasonable, the quantity surveyor may have good cause to reject certain costs
put forward by the contractor. The contractor has to make day-to-day
decisions in developing situations that may, in retrospect, be shown to be
wrong. The test must be: “Was the action reasonable in the circumstances
prevailing at the time?”

(f) On the other hand, a contractor who through good management is destined
to increase the profit he anticipated making at tender stage cannot be denied
this prospect by the incidence of a matter giving rise to a loss and/or expense
claim. For example, at tender stage the contractor might have anticipated
removing some element of plant by, say, the twentieth week. In the event he
may be beating this target and be destined to be able to remove it by, say, the
fifteenth week. If a delay caused by a matter recognized by the contract occurs
which requires that plant to be retained for a further four weeks, i.e. until the
nineteenth week, he is entitled to additional reimbursement for those four
weeks.

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G 4.2.3.2 EXTENSIONS OF TIME

Under JCT 98 and other forms of contract in the same series, the expression
‘extension of time’ is replaced by the words ‘fixing a new completion date’
but the more traditional ‘extension of time’ is used in this Section. Extension
of time does not necessarily mean that the contractor has an entitlement to
reimbursement of loss and/or expense. On the other hand, the contractor may
have an entitlement to such reimbursement even when there is no extension of
time. Each matter needs to be treated on its merits whether or not an extension
of time is due or granted. Nevertheless, under JCT 98 there is a requirement
that the contract administrator declares the amount of any extension of time
granted for any event which also constitutes a matter under clause 26 where
such a declaration is necessary for the ascertainment of loss and/or expense.
Thus, in ascertaining the contractor’s entitlement to reimbursement of loss
and/or expense, the existence and amount of any attendant extension of time
must be revealed where this is relevant to that ascertainment.

G 4.2.3.3 WRITTEN APPLICATION

Before the contractor is entitled to any reimbursement in respect of loss and/or

expense he should first have made an application, at the appropriate time, to
the appropriate party named in the conditions of contract. The purpose of this
written application is to enable the contract administrator to form his opinion
on whether or not there has been, or will be, loss and/or expense incurred
which would not be reimbursed under any other provision in the conditions of
the contract. In addition, it should be noted that, with reference to the matter
of applications:

(a) Applications must be made by the contractor as soon as it reasonably

becomes apparent to him that the regular progress of the Works is likely to be
materially affected by any of the relevant matters listed in the conditions of
contract.

(b) Applications to the quantity surveyor, in contrast to those made to the

contract administrator, are not valid unless specific authority has been given
by the employer.1

(c) Reference to loss and/or expense in site meetings or the like, or references
to ‘delays’ which do not mention loss and/or expense, do not constitute valid
written applications to recover loss and/or expense.

G 4.2.3.4 ADEQUACY OF THE DETAILS

JCT 98 requires that the contractor provides the contract administrator (or if
so instructed, the quantity surveyor) with all the documents necessary for

1 John Laing Construction Ltd v. County and District Properties Ltd (1982) 23 BLR 1

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adjusting the contract sum. This will include documents in support of

ascertainments of the contractor’s entitlement to reimbursement of loss and/or
expense (see clause 30.6.1.1). Moreover, clause 26.1.3 requires the contractor
to supply to the contract administrator or quantity surveyor, upon request,
such details as are reasonably necessary for the ascertainment of any
reimbursable loss and/or expense. But note that these details have to be
requested and clearly, for such details to be of maximum use, the request for
them should be made at the earliest opportunity.

G 4.2.3.5 In practice, what is going to be adequate data will depend upon the nature of
the disruption or delay. Thus, the request for the contractor to keep such
details should not only be timely but should also be as specific as possible as
to the data required.

G 4.2.3.6 NOMINATED SUB-CONTRACTORS

In general the same principles apply to ascertaining the loss and/or expense to
be reimbursed to a nominated sub-contractor as apply to the main contractor.
It must be recognized, however, that a nominated sub-contractor may have an
entitlement under the terms of the sub-contract to reimbursement by the main
contractor (due, for example, to the latter’s mismanagement) which should be
passed on to the employer.

4.2.4 Ascertainment
G 4.2.4.1 RESPONSIBILITY FOR ASCERTAINMENT

Under JCT 98 the responsibility for ascertaining the amount due is the
contract administrator’s, unless he instructs the quantity surveyor to undertake
this task. Where the contract administrator so instructs the quantity surveyor
this instruction should be in writing, to be copied to the contractor, and be
specific as to the matters which are covered in such an instruction. However,
the contract administrator cannot delegate to the quantity surveyor, or anyone
else, the task of forming an opinion on whether or not there is a case in
principle for loss and/or expense to be ascertained. A checklist of steps
required under JCT 98 is included at Appendix E.

G 4.2.4.2 The quantity surveyor should be careful to ensure that the contract administrator
undertakes this task of forming an opinion before embarking upon any
ascertainment. The quantity surveyor should also ask the contract administrator
for all the data he has upon which he formed that opinion; for the quantity
surveyor’s task is always one of determining quantum in respect of the items
which in the opinion of the contract administrator are admissible in principle. It
is not for the quantity surveyor to usurp the role of the contract administrator in
matters which the contract conditions specifically reserve for him.1

1 John Laing Construction Ltd v. County and District Properties Ltd (1982) 23 BLR 1

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G 4.2.4.3 However, once the quantity surveyor has been properly instructed to ascertain
the amount due he should proceed with this task without delay. It is for the
contract administrator or quantity surveyor, as the case may be, to ascertain
the amount and not to await a detailed submission from the contractor.

G 4.2.4.4 In general the surveyor should ensure that the basis, calculations and
evidential records used in the ascertainment are recorded in writing. This may
be a mandatory requirement on public sector contracts.

G 4.2.4.5 USE OF JUDGEMENT IN MAKING AN ASCERTAINMENT

An element of professional judgement is often inevitable in ascertaining the

contractor’s entitlement to reimbursement of loss and/or expense. This is
because what the contractor’s cost would have been had the relevant delay or
disruption not taken place has to be estimated (see G 4.2.1.6
and G 4.2.1.7). However, in forming that judgement the best evidence
available should always be used in reference. For example, where there is
contiguous work that has not been affected by delay or disruption this might
well provide good evidence of the progress that the contractor could have been
expected to have made generally.

G 4.2.4.6 Clause 26.1 of JCT 98 requires that ascertainment is made from time to time.
This means that ascertainment should be an ongoing process where the facts
are sufficiently established to make a proper and finite calculation. Moreover,
clause 30.2.2.2 of JCT 98 states that any amount ascertained under clause 26
should be included in interim certificates.

G 4.2.4.7 Thus, wherever ascertainment can properly be made of part of a contractor’s

entitlement it is important that this is done and the relevant amounts be
certified for payment. If part of a contractor’s entitlement can be wholly
ascertained then it should be, but there is no provision in this form of contract
for provisional assessment to be made.

G 4.2.4.8 COSTS VERSUS

When ascertaining a contractor’s entitlement it is the actual loss or actual

expense which is relevant. The prices in the contract bills or schedule of rates
should not be used as the actual costs may be more or less than these.
Additionally, the general rule of damages is that the type or kind of loss
payable is that “as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as the
probable result of the breach of it” (see G 4.2.1.3).

G 4.2.4.9 GLOBAL OR INDIVIDUAL ASCERTAINMENT

In recent years there has been much discussion on whether claims should
properly be considered on a global basis or whether each item should be
considered in isolation. In this respect the quantity surveyor need only be
concerned with the points in G 4.2.4.10 below.

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G 4.2.4.10 It is important that a contractor makes proper applications on each and every
occasion that an entitlement to make a claim arises.

(a) It is necessary that each application conforms fully with the rules written
into the contract about them (for example timing, in writing, sent to the
contract administrator).

(b) The contractor must keep such records as are necessary for the
ascertainment of the amount due.

(c) Only where the effect of a series of matters (for example the late issue of a
number of instructions or the instructing of a number of variations) is such as
to create extra costs which by their nature are indistinguishable from one
another can an application on a global basis be entertained. Simply because
there is, for example, a series of variation instructions which create
overlapping or contiguous disturbance, it does not follow that all other matters
on that project can be added in to make a global claim. A global approach to
ascertainment should be restricted solely to events which create
indistinguishable effects. Thus, no contractor should be penalised by being
denied reimbursement simply because extra costs were incurred which could
not by their nature be particularised. On the other hand, the facility of global
ascertainment should not be used to mask facts and figures that could properly
have been particularised and presented.

4.2.5 Admissible Items

G 4.2.5.1 GENERAL

A list of possible items admissible as part of an ascertainment of loss and/or

expense (which is to be read as including those attributable to sub-contractors)
is as follows:

• extended and/or increased use of ‘preliminaries’, for example more

supervision, more plant etc.;
• reduced labour outputs;
• extra waste or abortive purchase of materials;
• increase in the price of resources, i.e. inflation;
• increased cost of head office overheads;
• loss of profit; and
• finance charges.

More often than not the dominant items will be the first two from the above
list.

G 4.2.5.2 PRELIMINARIES

A representative list of the items normally comprising the preliminaries is

given at Appendix A.

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G 4.2.5.3 When ascertaining the extra cost of ‘preliminary’ items (but see G 4.2.4.8)
it is important to break each item down into the following components:

(a) Setting-up costs would be admissible where additional plant is properly

brought onto the site. If plant is already on site, setting-up costs would rarely
be admissible unless setting up has been delayed by a relevant matter and
inflation has occurred which is not reimbursable under the fluctuations
clauses.

(b) Removal costs are admissible in the same way as setting-up costs.

(c) Extra hire charges would be reimbursable if the particular item is required
to be kept on site longer than otherwise would have been the case due to the
relevant matter. The comparison is between the period that the item would
have been on site had the matter not occurred and the period that it was
reasonable to have been on site given that the matter did occur
(see G 4.2.1.7). Where the plant in question is owned by the contractor the
measure of his loss is the amount (if any) that he could have earned by using
the plant elsewhere had it not been tied up on the site for longer than would
have been the case if the matter in question had not occurred.

(d) Extra running charges would be reimbursable if, due to a relevant matter,
the particular item is required for a longer period than otherwise would have
been the case. Again the comparison is between the period that the item would
have been in use had the matter not occurred and the period that it was
reasonable to have been in use given that the matter did occur
(see G 4.2.1.7).

G 4.2.5.4 DISRUPTION OF LABOUR

The ascertainment of the cost of disruption to labour is invariably a difficult

process. It is impossible to give precise and definitive advice as all will depend
upon the circumstances in each case. However, the following general pointers
should be of some assistance:

(a) In all circumstances avoid the application of an overall percentage to

global labour costs; rarely if ever are the whole labour costs on a project
disrupted.

(b) Wherever possible request that contemporary records be kept, noting the
output achieved in practice by the particular workmen who are disrupted.
Clerk of works’ records and diaries can be invaluable evidence of this.

(c) Have regard to whether any delay comprises a series of small recurrent
delays or one large one. In the former case the proportional loss of output can
be very high, whereas in the latter case the loss can be mitigated by
redeploying resources elsewhere.

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(d) Recognize that there is a learning curve in all activities. The advantage of
this can be lost if a new gang of men is brought in to undertake work which
has become familiar to others; the resultant extra cost will be reimbursable.
Moreover, if additional labour has to be recruited at short notice it may be
necessary to pay premium rates which would in principle be reimbursable.

(e) Whatever the level of variation orders, late instructions and so on, much of
the work of labour will not actually be significantly affected. For example,
bricklaying or fixing pipework once under way may suffer little or no delay.
The delay may be associated with becoming familiar with an unexpected or
unplanned task. The ‘coal face’ operation may not be affected at all.

(f) Recognize that great economies can flow from a repetitive task, for
example fixing partitions in a series of identical dwellings, the interruption of
which can result in far-reaching losses.

G 4.2.5.5 A list of items relevant to the calculation of reimbursable extra costs of

disruption is given at Appendix B.

G 4.2.5.6 EXTRA WASTE AND/OR ABORTIVE PURCHASE OF MATERIALS

These may not be significant elements in an ascertainment but it may be that

the constant moving of materials, stores or compounds following a relevant
matter will result in extra waste. As long as this has not resulted from a lack of
proper management this cost will properly form part of any ascertainment.
Alternatively, it may be that materials purchased for the works have been
omitted by a subsequent variation order. Provided that such materials were not
purchased prematurely the cost would again properly form part of any
ascertainment.

G 4.2.5.7 INFLATION

If work is executed later than otherwise would have been possible as a result
of a relevant matter and if inflation has caused the cost to rise then, provided
that such costs are not reimbursable under the fluctuations clause, they will
form part of the ascertainment. Even where the contract contains a
fluctuations clause, if it contains a non-adjustable element, a delay in the
execution of work might well increase the non-recoverable element, which
would be reimbursable.

G 4.2.5.8 INCREASED COST OF HEAD OFFICE OVERHEADS

Loss in the recovery of head office overheads is an admissible item but the
amount of such loss may be difficult to substantiate. Overall percentages, not
related to the particular circumstances, cannot be used.1

G 4.2.5.9 Wherever possible, proof should be sought of such items as extra site visits by
head office staff or the greater involvement of head office staff in managing

1Tate & Lyle Food and Distribution Co. Ltd & Another v. Greater London Council & Another (1982)
1WLR 149

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the project as a result of the matters giving rise to a claim. Appendix C gives
further guidance on the components and methods of such an ascertainment.

G 4.2.5.10 Account should be taken of the extent to which extra costs are already being
reimbursed through the pricing of the variation account.

G 4.2.5.11 Where there has been a delay as a result of a relevant matter but no consequent
increase in value (thereby excluding some contribution to extra head office
costs) some extra recovery is an entitlement provided that this does not extend
to include costs that should have been mitigated. It should also be shown that,
but for this delay and the consequent tying-up of head office resources for a
longer period than would otherwise have been the case, those resources could
have been productively used elsewhere. The Courts have increasingly
recognized that, providing all the pre-conditions are met, a formula approach
to calculating this element maybe permissible.1

G 4.2.5.12 As with the recovery of loss of profit, however, it is important that overriding
consideration be given to the level of recovery that would have been possible
on alternative work had the contractor been free to do so (see G 4.2.5.13).

G 4.2.5.13 LOSS OF PROFIT

If, as a direct result of a matter referred to in the conditions of contract, loss of
profit is suffered which could have been earned in the normal course of
business elsewhere, there is an entitlement to reimbursement of that profit.2
This amount should be calculated by reference to the level of profit to have
been made by the use of the resources on other projects during the period of
retention on site as a direct result of the cause of delay. The level should be
that prevailing in the market during the period immediately following the
original date for completion or such earlier date at which the resources would
have been released from the contract. It might, therefore, be higher or lower
than that contemplated in the contract sum. Moreover, where loss of profit is
being calculated as a result of a delay caused by the execution of variations it
is important that a deduction be made for any other profit reimbursed to the
contractor for those variations priced at contract rates.

G 4.2.5.14 FINANCE CHARGES

Clause 30.1.1.1 of JCT 98 now provides for the payment of interest, at 5%
over the base rate of the Bank of England, for any payments which are
overdue. This is in line with the statutory right now available to certain
classes of businesses under the Late Payment of Commercial Debts
(Interest) Act 1998. The JCT form expressly notes that the payment of
contractual interest may not be construed as a waiver by the contractor of his
or her rights to proper and timely payments. However, finance charges are
not an interest on a debt, but a debt which has interest charges as one of its
component parts which have been paid by a contractor on money which was

1 St Modwen Developments Ltd v. Bowmer & Kirkland Ltd (1996) 1996 CILL 1203
2 Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) 1 BLR 114

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PART 4, SECTION 2

borrowed (or interest that could not be earned on capital) in order to finance
the prime cost of the loss and/or expense. Such finance charges are
reimbursable.1

G 4.2.5.15 Finance charges are recoverable from the date that the primary loss and/or
expense was incurred up to the time that the certificate, which included the
payment of that loss and/or expense, was issued, provided, as always, that the
conditions in the contract in that respect have been met (see G 4.2.3.3 (c)).

G 4.2.5.16 The rates and manner of interest payable should be those actually incurred (or
being earned on capital).

4.2.6 Inadmissible Items

G 4.2.6.1 GENERALLY

It is not possible to list all the items which are inadmissible. However, it might
be helpful to comment upon certain items which are occasionally claimed as
being reimbursable when they are not. Among these the most usual are:

(a) The costs of acceleration, unless specifically approved by the employer

beforehand (see G 4.2.6.2).

(b) The cost of preparing a submission for the reimbursement of loss and/or
expense.

G 4.2.6.2 THE COST OF ACCELERATION

In common with most lump sum contracts JCT 98 does not contain provisions
for instructions to be given to accelerate the works. If acceleration is required
it should be achieved by means of a separate agreement.

G 4.2.6.3 However, the contractor’s obligation whenever he is, or is likely to be,

delayed is to “use constantly his best endeavours … to prevent the completion
of the Works being delayed”. It is generally thought that the use of ‘best
endeavours’ is likely to be limited to the rescheduling of resources and the
taking of such measures as may be appropriate to allow the works to proceed
without incurring (significant) costs.

G 4.2.6.4 THE COST OF PREPARING A SUBMISSION FOR REIMBURSEMENT OF LOSS AND/OR

EXPENSE
There is no contractual requirement for a contractor to prepare details of the
amount of loss and/or expense and thus there is no entitlement to any
reimbursement for so doing.

G 4.2.6.5 Where, however, he provides the data which might be required by the quantity
surveyor under clause 26.1.3 the cost of so doing may be reimbursable.

1F G Minter Ltd v. Welsh Health Technical Services Organization (1980) 13 BLR 2

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PART 4, SECTION 2, APPENDIX A

Appendix A: Ascertaining the Cost of Running a Site

The items given below are intended only as a guide; the list is not comprehensive.

A1 STAFF AND ADMINISTRATION

Note: This includes security and welfare personnel and the supervisory time
of trades foreman and the like.
Consider:

• staff salaries (including subsistence, guaranteed bonuses and allowances

where paid);
• travel costs, including cars and fuel;
• national insurance, pensions etc. – employer’s contributions;
• private health insurance – employer’s contributions;
• employer’s liability insurance, third party insurance;
• training levy;
• redundancy fund, holidays with pay, superannuation; and
• agency staff where applicable.

A2 TEMPORARY ACCOMMODATION

Consider:

• temporary offices – rental/repairs and maintenance;

• stores – rental/repairs and maintenance;
• canteen – rental/repairs and maintenance;
• canteen equipment;
• canteen consumables;
• canteen subsidy;
• signs, boards and notices;
• fire-fighting equipment;
• first-aid equipment;
• nurse/first-aider;
• site welfare and safety;
• gas and electricity;
• rates on temporary buildings;
• telephone/facsimile lines/system rental;
• telephone/facsimile calls;
• mobile phone calls;
• office furniture;
• computers, including servers and data lines;
• photocopiers – equipment and consumables;
• office consumables and stationary;
• drawing and copying;
• postage/franking machine;
• office cleaning;
• sanitary accommodation and welfare facilities;
• general cleaning and disposal;
• general site wear; and
• progress photographs.

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A3 PLANT
This covers plant owned by the contractor or hired from a subsidiary or
specialist company. It is advised that the conditions of hire are examined.
There is often a guaranteed minimum period of hire which would have been
paid for in any case. When long delays have occurred, loss must be mitigated
by use elsewhere or the termination of the hire contract.
Consider:

• tower cranes;
• mobile cranes;
• banksmen and slingers;
• weighbridge;
• wheel washing facilities;
• compressors;
• mixers;
• pumps;
• hoists;
• site surveying equipment;
• site/crane radio system;
• concrete testing;
• general site equipment;
• small plant and tools; and
• rubbish removal (skips).

A4 TEMPORARY WORKS/ACCESS
Consider:
• temporary roads – maintenance; and
• clean access and site roads.

A5 FENCING AND SECURITY

Consider:
• site boundary fencing/hoarding;
• site compound fencing;
• site security (including guards if appropriate); and
• temporary weather proofing.

A6 DISTRIBUTION
Consider:
• service gang –cleaning, attendance and distribution;
• forklifts and drivers;
• dumpers and drivers;
• telescopic hoists, including driver;
• internal site transport; and
• hoist drivers.

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PART 4, SECTION 2, APPENDIX A

A7 SCAFFOLDING
Consider:
• extra hire;
• adaptations; and
• additional work – for example safety rails where scaffolding removed.

A8 TEMPORARY ELECTRICS
Consider:
• equipment – generators, transformers etc.;
• fuel consumption;
• consumables; and
• maintenance.

A9 TEMPORARY WATER
Consider:
• water and sewerage – rates/metered consumption; and
• maintenance.

A10 INSURANCE
Consider:
• contractor’s all risk;
• public liability;
• professional indemnity; and
• performance bond.

A11 HEAD OFFICE STAFF COSTS

Consider:
• that proportion of time spent on project which is only applicable if not
booked directly to the project. See general comments at G 4.2.5.8
to G 4.2.5.12 and Appendix C.

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PART 4, SECTION 2, APPENDIX B

Appendix B: Disruption
B1 THE EFFECTS OF DISRUPTION
B1.1 Labour
Factors to be taken into account include:

• 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; and
• changes in labour strength on the site and in gangs;

B1.2 Plant
Refer to invoices to indicate additional costs due to:

• relocation of plant, on or off site;

• additional plant;
• additional tools;
• alterations or additions to scaffolding; and
• standing time.

B1.3 Materials
Extra costs can be incurred due to the:

• double handling of materials;

• waste and damage of materials;
• return of materials to the store or supplier; and
• substitution of materials.

B2 INFORMATION AVAILABLE TO THE CONTRACT ADMINISTRATOR/QUANTITY

SURVEYOR
B2.1 Apart from issued drawings, written instructions and correspondence, other
information that should be referred to includes:

• contractor’s programme and amendments;

• site reports;
• site measures;
• clerk of works’ reports;
• daywork records;
• photographs; and
• minutes of meetings.

B2.2 This information can assist in the ascertainment of the effects of instructions
upon progress.

B3 QUANTITY SURVEYOR’S CONSIDERATIONS

B3.1 It is important to receive from the contractor proper, detailed records of
delays which disrupt progress. Ideally, this information needs to be in diary
form and should indicate:

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• the immediate effect upon working trades;

• the knock-on effect upon succeeding trades, particularly sub-contractors;
• the effect upon allied trades working in the vicinity;
• the inability to divert labour elsewhere (i) on the site, and (ii) to other
contracts;
• evidence of efforts made to divert labour to other contracts, or to
otherwise mitigate the costs of construction and effects of disruption; and
• the relationship with nominated firms and sub-contractors and records
from them to substantiate the claim of disruption.

B3.2 There may be further items not covered above which the contractor could
bring to the notice of the quantity surveyor. In making an assessment of
disruption, the quantity surveyor may require the tender progress intentions
of the contractor, and to examine data on which projections of progress were
based in order to indicate the effect that changes have had upon the planning.
The information may include critical path analyses and similar information.

B3.3 The quantity surveyor should give careful consideration to all this
information and judge its relevance to the particular matters being examined
(but see G 4.2.4.2).

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Appendix C: Ascertaining the Cost of Head Office Overheads

C1 HEAD OFFICE OVERHEADS
A contractor seeking direct loss and/or expense in relation to head office
overheads will probably include some or all of the following:

• company offices, rents and rates;

• plant yards;
• running costs/maintenance costs of these units;
• directors’ and staff’s salaries, emoluments and allowances (estimating and
sales staff should not be included);
• expenses, including office equipment, postage, telephones etc.;
• cost of travelling, including allowances for company’s motor cars etc.;
• professional legal and/or accountancy fees; and
• depreciation.

C2 ESSENTIAL BACKGROUND INFORMATION

C2.1 Consider the method adopted by the contractor as policy in incorporating
these costs in his tenders:

• percentage;
• lump sum(s) (specify how compiled); and
• spread in rates of all items.

C3 ASCERTAINMENT OF THESE COSTS

C3.1 Check:

• time records or diaries which may indicate additional time spent with
consequential financial disbursements (this should be time arising from
relevant events over and above that which would have been spent on
ordinary administration of the contract);
• proof of payment made on all admissible items; and
• details showing build-up of general head office costs at the relevant time
or throughout any relevant period.

C3.2 For a contractor to succeed, it is recommended that the quantity surveyor is

reasonably satisfied that:

• time expended was additional to that reasonably to have been expected;

• the extra costs have not been recouped in other ways (for example from
set-off or other arrangements with sub-contractors);
• any loss and/or expense sought has not been avoided by re-deployment of
resources on other contracts;
• additional costs have not been recovered through rates for measured
works;
• additional costs have not been recovered in dayworks; and
• head office staff costs have not been recovered elsewhere.

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C4 FURTHER CONSIDERATIONS FOR THE QUANTITY SURVEYOR

C4.1 At what stage in the contract did delays occur and what was the impact
on head office costs? (The costs are unlikely to have been incurred
until the end of original contract period.) While it is correct that the
actual sum allowed in the contract price for head office overheads will
not necessarily be expanded by the contractor until after the end of the
original contract period, the contractor will actually incur the
additional costs at the time of the delay and since it is likely that
overhead recovery will be delayed as a result of the later execution of
original contract work then the additional overheads could be payable
before the end of the original contract period.

C4.2 What were the relevant events giving rise to delays under the
conditions of contract? Were head office costs applicable to those
events?

C4.3 To what extent was the head office involved in, for example, site visits,
meetings etc.?

C4.4 Was there a need to employ additional head office staff whether or not
a delay had occurred?

C4.5 How effectively did the firm employ staff on this contract as against
other contracts that they were undertaking?

C4.6 What was the size of the contract in relation to the size of the firm and,
therefore, the impact of the delay to progress on the business of the
firm?

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PART 4, SECTION 2, APPENDIX D

Appendix D: Checklist of Items for which Loss and/or Expense are

Allowed
The contract clause numbers referred to in this form are from JCT 98

Contract Item Tick

clause
number

26.2.1 The contractor not having received in due time necessary:

instructions
drawings, details; and
levels
for which he specifically applied in writing provided the date
of application was neither unreasonably close to nor distant
from the date the contractor needed them bearing in mind the
date of completion

26.2.2 Inspection – tests under clause 8.3:

opening up for inspection any work covered up and
making good testing of any executed work and making
good unless inspection reveals items not in accordance
with the contract

26.2.3 Discrepancy or divergence between the contract drawings

and/or the contract bills

26.2.4 Execution of work (not forming part of the contract) by the

employer or by persons engaged by him; failure by these
parties to execute such work

26.2.5 Postponement by the architect of any work to be executed

under the contract

26.2.6 After receipt of any notice the contractor is required to give,

failure by the employer to give ingress or egress in due time
to the contractor from the site of the works or any part thereof
in the possession and control of the employer, in accordance
with the contract bills/contract drawings:
through or over land, buildings, way or passage adjoining
or connected with the site
through or over land etc. as last item as otherwise
agreed between architect and contractor

26.2.7 Instructions issued regarding expenditure of provisional sums

except work being carried out as a PC sum by the contractor
after submission of a tender for it, but excluding variations for
which a clause 13A quotation has been accepted

26.2.8 Execution of approximate quantity work where bills are not a

reasonably accurate forecast

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PART 4, SECTION 2, APPENDIX E

Appendix E: Checklist of Steps Required when Considering

Submissions by Contractor
The contract clause numbers referred to in this form are from JCT 98.

Contract Item Comments from Tick

clause the quantity
number surveyor

26.1 The contractor has applied in writing stating:

he has incurred/is likely to incur direct loss
and/or expense not reimbursed by any other
contract provision
progress has been/is likely to be materially
affected by the items listed in clause 26.2

26.1.1 The contractor has made application as soon as it

was reasonably apparent that:
the regular progress of the works/or part of
the works has been/is likely to be affected
the contract administrator has requested
supporting details to enable an opinion to be
formed

26.1.2 The contractor has upon request:

supported the application with information to
enable an opinion to be formed

26.1.3 The contractor has upon request:

provided details of loss and/or expense to
assist ascertainment
The architect has:
requested information from the contractor
(26.1.2, 26.1.3) to form an opinion
has ascertained/requested the quantity
surveyor to ascertain the amount of loss and
expense
The architect has stated in writing:
the extension of time granted (if any) from
time to time during the contract
the relevant event(s) for which it is given
(clause 25) and more particularly defined in
clause 26.3

25.3.4 A new completion date; not later than 12 weeks

after receipt of this notice, sufficient particulars
and estimate (where completion is less than 2
weeks distant, set a date not later than completion
date)

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PART 4, SECTION 2, APPENDIX F

Appendix F: Further Reading

BOOKS

Chappell, David. Powell-Smith and Sims’ Building Contract Claims, 3rd Edition,
Blackwell Science Ltd, 1998

Duncan-Wallace, I N. Hudsons Building and Engineering Contracts, 11th Edition,

Sweet & Maxwell, 1995

Keating, Donald and May, Anthony Sir. Keating on Building Contracts, 7th Edition,
Sweet & Maxwell, 2001

Parris, John. The Standard Form of Building Contract JCT 80, 2nd Edition, Collins,
1985

Powell-Smith, Vincent and Furmston, Michael. A Building Contract Casebook, 2nd

Edition, BSP Professional Books, 1990

Trickey, G G and Hackett, M. The Presentation and Settlement of Contractors’

Claims, E & FN Spon, 2000

LAW REPORT SERIES

Building Law Reports

Construction Industry Law Letter

Construction Law Digest

Construction Law Reports

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