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.
Tabella dei contenuti
Reviews xvii
Preface xxi
Acknowledgements xxvii
1 Introduction 1
1.1 The Legal Basis 2
1.1.1 Forms of Contract 2
1.2 The Standard of Substantiation 4
1.2.1 SCL Delay and Disruption Protocol 5
1.2.2 Direct and Time Consequences 7
1.2.3 Duty to Mitigate 9
1.3 Risks 12
1.3.1 Design Risks 12
1.3.2 Design Review 14
1.3.3 Professional Indemnity Insurance 14
1.3.4 Risk Analysis and Management 14
1.3.5 Risk Registers 16
1.3.6 Risks and Records 17
1.3.7 Reimbursable Risks 20
1.3.8 Non-reimbursable Risks 21
1.4 Sources of Change 22
1.4.1 The Process of Analysis 22
1.4.2 Inadequate Pre-contract Design and Documentation 23
1.4.3 Design Development and Approval 26
1.4.4 Access or Possession 27
1.4.5 Early Taking over or Beneficial Use 28
1.4.6 Changes in Employer Requirements 28
1.4.7 Contract Documents 29
1.4.8 Unforeseeable Occurrences 30
1.4.9 Breach of Contract 31
1.5 Summary 32
2 Establishing the Base 33
2.1 Planned Change 34
2.1.1 Ordered Variations 36
2.1.1.1 Fair Rates and Prices 39
2.1.2 Changes in Quantities 41
2.1.2.1 Quantities and Conditions 43
2.1.3 Preferential Engineering 44
2.1.4 Value Engineering 45
2.1.5 Unconfirmed Instructions 46
2.2 Unplanned Change 47
2.3 Programmes and Method Statements 47
2.3.1 The Status of Programmes 47
2.3.2 Programmes and Resources 52
2.3.2.1 Method Statements 52
2.3.3 The SCL Delay and Disruption Protocol 54
2.3.4 A Partial Programme 55
2.3.5 Limitations on Liability 55
2.4 Summary 56
3 Effect of Change on Programmes of Work 57
3.1 Use of Programmes 58
3.1.1 Provisional Sums in Programmes 60
3.1.2 The Base Cost 63
3.2 Use of As-Built Programmes 64
3.2.1 Sources of Information for As-Built Programmes 65
3.2.2 Constant Resource/Continuous Working 66
3.2.3 Recording of Completion 67
3.3 Change Without Overall Prolongation 67
3.3.1 Who Owns the Float? 68
3.4 Prolongation of the Works 74
3.5 Analysis of Time and Delay 77
3.5.1 Introduction 77
3.5.2 Basic Requirements 82
3.5.3 Float and Acceleration 86
3.5.4 Concurrent Delays 88
3.5.5 ‘Dot on’ 98
3.5.6 Concurrency and the Contractor’s Financial Claims 100
3.5.7 Delay Analysis Techniques 103
3.5.7.1 Impacted as Planned 104
3.5.7.2 Time Impact Analysis 108
3.5.7.3 Collapsed As-Built Analysis 111
3.5.7.4 As-Planned Versus As-Built Programmes 113
3.5.7.5 Windows Analysis 115
3.5.7.6 Software 116
3.5.7.7 Building Information Modelling 118
3.5.7.8 Case Law 120
3.5.7.9 Conclusions 123
3.5.8 Assessment of Productivity 125
3.5.8.1 Tender Productivity 126
3.5.8.2 Achievable Productivity 127
3.5.8.3 Actual Productivity After a Change 127
3.5.9 Sources of Productivity Data 128
3.5.9.1 The Fundamental Principles 128
3.5.9.2 Relevant Quantities 128
3.5.9.3 Equipment and Methods 129
3.5.9.4 Sustainable Outputs 130
3.5.9.5 Recalculation Using Efficiency Factors 130
3.5.10 Effect on Contractor’s Plant and Equipment 131
3.5.10.1 Working Plant and Equipment 132
3.5.10.2 Site Facilities and Equipment 133
3.5.11 Duty to Mitigate 134
3.6 Summary 135
4 Sources of Financial Information for Evaluation 137
4.1 The Contract Provisions 139
4.1.1 Cost 139
4.1.2 Loss and Expense 141
4.1.3 To Ascertain 142
4.2 Tender Documents and Information 145
4.2.1 Entire Agreements 146
4.2.2 Misstatements and Misrepresentation 147
4.2.3 Mistakes in Tenders 148
4.2.4 The Conditions for, and Character of, the Works 149
4.3 Tender Calculations and Assumptions 149
4.4 Cost Records 151
4.4.1 Identification of Invoices 151
4.4.2 Discounts and Credit Notes 152
4.4.3 Bulk Discounts 153
4.4.4 Coding Systems 154
4.4.5 Timing of Costs 154
4.4.6 Cost Transfers and Accruals 155
4.4.7 Final Accounts and Economic Duress 156
4.5 Accounting Information 158
4.5.1 Financial Accounts 158
4.5.2 Management Accounts 159
4.5.3 Exceptional Items 161
4.6 External Information 161
4.7 Summary 162
5 Evaluation of the Direct Consequences of Change 165
5.1 Unit Rates and Prices or Actual Costs? 166
5.2 Unit Rates and Prices 167
5.2.1 The FIDIC Forms of Contract 172
5.2.2 Measurement of Work 173
5.2.3 Design and Build/Schedule of Rates 175
5.2.4 Status of Contract Rates and Prices 176
5.2.5 Errors in Rates and Prices 177
5.3 The Valuation ‘Fences’ 184
5.3.1 The ‘Fences’ 185
5.3.2 ‘Conditions’ and ‘Character’ 185
5.3.2.1 Change in Conditions 187
5.3.2.2 Change in Character 188
5.3.3 New Rates 189
5.3.4 Valuation of Variations in Quantity 190
5.3.5 Effect of Variations on Other Work 196
5.4 Inclusion of Preliminaries and General Items 197
5.5 Percentage Adjustments 200
5.5.1 Percentages in Variation Valuation 200
5.5.2 Threshold Percentages 201
5.5.2.1 Criteria for Judging Change in the Amount of Work 202
5.5.2.2 Which Rates are to Be Amended? 203
5.5.2.3 What Rules Apply? 203
5.5.3 Percentages for Defective or Incomplete Work, etc. 204
5.5.4 Percentage Caps on Adjustments 205
5.6 Valuation Using Day work Provisions 205
5.7 Use of Actual Costs 210
5.7.1 The NEC Suite of Contracts – Introduction 211
5.7.2 The NEC Suite of Contracts – Forecast or Actual Cost? 213
5.7.3 The NEC Suite of Contracts – Defined Cost 218
5.7.4 The NEC Suite of Contracts – Disallowed Cost 221
5.7.5 The NEC Suite of Contracts –The Fee and Other Agreed Rates 223
5.7.6 The NEC Suite of Contracts – Objectives 224
5.8 Unit Costs 225
5.8.1 Labour Costs 229
5.8.1.1 Gang Rates 229
5.8.1.2 Supervision 230
5.8.2 Use of Norms in Evaluation 231
5.8.3 Plant and Equipment Costs 234
5.8.3.1 Plant and Equipment Cost Rates 235
5.8.3.2 External Hire Charges 240
5.8.4 Materials Costs 241
5.8.5 Overheads and Profit 243
5.9 Subcontractor and Supplier Costs 245
5.9.1 Subcontractors 246
5.9.1.1 Nominated or Named Subcontractors 246
5.9.1.2 Domestic Subcontractors 249
5.9.2 Package Equipment Suppliers 250
5.9.2.1 Example of Change Calculation for Package Equipment 252
5.10 Valuation of Omissions 253
5.11 Add and Omit Variations 254
5.12 Quantum Meruit 257
5.12.1 No Contract or Agreement as to Price 258
5.12.2 Contract Only Says Reasonable Sum 259
5.12.3 Work Outside of Contract 259
5.12.4 Cardinal Change 260
5.12.5 How to Calculate 263
5.13 Valuation in Advance 265
5.14 Requirements for Notices 269
5.14.1 Notice in Relation to Unit Rates 270
5.14.2 Notice in Relation to a Quotation or Proposal 273
5.14.3 Notice as a Condition Precedent and Other Sanctions 275
5.14.4 Further Considerations 277
5.15 Summary 278
6 Evaluation of the Time Consequences of Change 279
6.1 Introduction 279
6.1.1 Factual and Legal Background 279
6.1.2 Financial Effects for the Employer 282
6.1.3 Financial Effects for the Contractor 283
6.1.4 The Causal Link 285
6.1.5 The SCL Delay and Disruption Protocol 287
6.1.6 Conclusions 289
6.2 Prolongation 289
6.2.1 What is to be Evaluated? 289
6.2.2 The Relationship Between Extension of Time and Money Claims 290
6.2.3 Time-Related Costs 295
6.2.3.1 When Did the Delay Occur? 295
6.2.4 What Costs Were Incurred in the Delay Period? 297
6.2.5 Typical Heads of Prolongation Cost 298
6.2.6 Typical Heads of Prolongation Cost – Staff 300
6.2.7 Typical Heads of Prolongation Cost – Labour 302
6.2.8 Typical Heads of Prolongation Cost – Temporary Buildings 303
6.2.9 Typical Heads of Prolongation Cost – Temporary Services 304
6.2.10 Typical Heads of Prolongation Cost – Temporary Works 304
6.2.11 Typical Heads of Prolongation Cost – Plant and Equipment 305
6.2.12 Example of Additional Activity Costs 307
6.2.13 Relevance of Tendered Preliminaries and General Cost Rates 310
6.2.14 Increases in Costs 313
6.2.15 Off-Site Overheads and Profit 315
6.3 Liquidated Rates for Delay Damages 315
6.3.1 Challenges to the Rate of Delay Damages 317
6.3.2 Delay Damages as a ‘Penalty’ 320
6.3.3 Actual Damages for Delay 323
6.3.4 The Date(s) from Which Delay Damages Run 324
6.3.5 Procedure and Prerequisites 324
6.4 Disruption 325
6.4.1 Legal Basis of a Disruption Claim 327
6.4.2 The Factual Basis of a Disruption Claim 330
6.4.3 Evaluating the Costs of Disruption – Introduction 332
6.4.4 Records of Time Lost 334
6.4.5 The ‘Measured Mile’ 338
6.4.5.1 Illustrative Example of an Earned Value Approach 343
6.4.6 Comparing Tendered and Actual Outputs 344
6.4.6.1 Tendered Allowances 344
6.4.6.2 Actual Outputs 346
6.4.6.3 Other Potential Distorting Factors 347
6.4.6.4 Back-Checking the Results 349
6.4.6.5 Conclusions on Costs Less Recovery Approaches 351
6.4.7 Factors Affecting Productivity 353
6.4.7.1 Excessive Overtime, etc. 354
6.4.7.2 Weather Conditions 356
6.4.7.3 Introduction of Additional Resources 356
6.4.7.4 Lack of Management 357
6.4.7.5 Changes in Ratio of Labour to Plant and Equipment Mix 358
6.4.7.6 Condensing of Activities 359
6.4.7.7 Resequencing Activities 359
6.4.7.8 Breaks in Continuity 360
6.4.7.9 Changes in Personnel 360
6.4.7.10 Contractor Inefficiencies 361
6.4.8 Cumulative Impact Claims 362
6.4.9 Top Down or Bottom Up? 365
6.4.9.1 The ‘Top Down’ Approach 365
6.4.9.2 The ‘Bottom Up’ Approach 367
6.4.10 The ‘Rump’ of the Contractor’s Losses 367
6.4.11 Hypothetical Illustrative Disruption Calculation 369
6.4.12 Preliminaries Thickening Claims 373
6.4.13 Consequential Further Delay Events 376
6.4.14 Summary of Disruption 379
6.5 Acceleration 380
6.5.1 Acceleration Under the Contract 382
6.5.2 Acceleration by Extra-Contractual Agreement 386
6.5.3 Acceleration as a Component of Delay and/or Disruption Costs 390
6.5.4 Induced or Constructive Acceleration 391
6.5.5 The Canadian Cases 394
6.5.6 Acceleration to Reduce the Contractor’s Culpability 400
6.5.7 Financial Quantification of Acceleration 401
6.5.8 Sample Acceleration Costing 404
6.6 Global Claims and Similar Terms 406
6.6.1 Potential Definitions 406
6.6.1.1 ‘Global Claim’ 406
6.6.1.2 ‘Total Costs Claim’ 409
6.6.1.3 ‘Total Loss Claim’ 411
6.6.1.4 ‘Composite Claim’ and ‘Rolled-Up Claim’ 412
6.6.2 Global Claims 414
6.6.2.1 Introduction 414
6.6.2.2 A Historical Perspective 416
6.6.2.3 The Current Position 432
6.6.2.4 Lilly and Mackay 438
6.6.2.5 The Need for a Global Approach 440
6.6.3 Conclusions 443
6.7 Subcontractor Costs 444
6.7.1 Third Party Settlements 444
6.7.2 Unsettled Third Party Claims 453
6.8 Off-Site Overheads and Profit 454
6.8.1 Off-Site Overheads 455
6.8.1.1 Off-Site Overheads on an Expenditure Basis 456
6.8.1.2 The Time and Cost of Absorbed Overheads 461
6.8.1.3 Lost Contribution to Unabsorbed Overhead 461
6.8.1.4 Management Charges 462
6.8.2 Profit 463
6.8.3 Formula Approaches 466
6.8.3.1 The Hudson Formula 467
6.8.3.2 The Emden Formula 468
6.8.3.3 The Eichleay Formula 469
6.8.3.4 The Adoption of Formulae 470
6.8.3.5 When to Use a Formula 479
6.8.3.6 Example of a Formula Claim 481
6.8.3.7 Concluding Comments on Formulae 482
6.9 Interest and Finance Charges 484
6.9.1 Finance and Interest Under Contract Provisions 485
6.9.2 Finance and Interest as a Head of Claim 489
6.9.3 Damages for Breach 493
6.9.4 The Rate and Compounding of Interest 495
6.9.5 Adjustments to the Calculation 499
6.9.6 Statutory Interest 499
6.10 Duplication of Recoveries 501
6.10.1 Overlaps Between Prolongation and Disruption Claims 502
6.10.2 Overlaps Between Additional Work and Prolongation 504
6.10.3 Overlaps Between Overheads and Profit and Variations 507
6.10.4 Overlaps Between Additional Work and Disruption 508
6.11 Summary 509
7 Termination Claims 513
7.1 Introduction 513
7.2 Termination Under Standard Forms 518
7.2.1 Termination for Default by the Contractor 518
7.2.2 Termination for Default by the Employer 522
7.2.3 Termination for a Party’s Convenience 524
7.2.4 Termination for Major Events in Neither Party’s Control 526
7.2.5 Competing Claims for Termination 527
7.3 Claims for the Contractor’s Lawful Termination 527
7.3.1 ‘Amounts Payable for any Work Carried Out’ 527
7.3.2 ‘The Cost of Plant and Materials Ordered for the Work’ 532
7.3.3 ‘Any Other Cost or Liability Which in the Circumstances was Reasonably Incurred…in the Expectation of Completing the Works’ 534
7.3.4 ‘The Cost of Removal of Temporary Works and Contractor’s Equipment’ 537
7.3.5 ‘The Cost of Repatriation of the Contractor’s Staff and Labour’ 537
7.3.6 ‘A Loss of Profit or Other Loss or Damage Sustained by the Contractor’ 539
7.3.7 Demobilisation 542
7.3.8 Subcontractor and Supplier Claims 543
7.3.9 Other Heads of Contractor Losses or Costs 544
7.4 Claims for the Employer’s Lawful Termination 544
7.4.1 ‘The Value of the Works, Goods and Contractor’s Documents’ 544
7.4.2 ‘Any Losses and Damages Incurred by the Employer’ 546
7.4.2.1 ‘Any Extra Costs of Completing the Works’ 546
7.4.3 Bonds 550
7.5 Claims for the Employer’s Unlawful Termination 551
7.5.1 Repudiation 553
7.6 Claims for the Contractor’s Unlawful Termination 554
7.7 Summary 554
8 Other Sources of Claims 557
8.1 Letters of Intent 557
8.1.1 Instructions to Proceed 562
8.2 Bonds 563
8.2.1 Types of Bond 564
8.2.1.1 Bid Bonds 565
8.2.1.2 Advance Payment Bonds 565
8.2.1.3 Retention Bonds 567
8.2.1.4 Parent Company Guarantees 567
8.2.1.5 Performance Bonds 568
8.2.1.6 Payment Bonds 569
8.2.1.7 Materials Off-Site Bonds 570
8.2.2 Claims in Relation to Bonds 571
8.2.3 Costs Incurred When Bonds are Called 571
8.2.3.1 Example of a Hypothetical Currency Swap 573
8.2.4 Costs Incurred When Bonds are Extended 574
8.3 Fluctuations in Costs 576
8.3.1 Taxes, Levies and Statutory Contributions 577
8.3.2 Labour, Materials and Tax Fluctuations 580
8.3.3 Price Adjustment Formula 581
8.3.4 Application to Other Claims 583
8.3.5 Effects of Delays 584
8.4 Suspension of Work 585
8.4.1 The Right to Suspend 585
8.4.2 Typical Financial Heads of Suspension Claims 587
8.4.2.1 Prolongation Costs 587
8.4.2.2 Security, Storage and Protection 588
8.4.2.3 Deterioration and Defects 589
8.4.2.4 Payment for Items Not Yet on Site 590
8.4.2.5 Resumption Costs 590
8.4.2.6 Reducing the Rate of Work Progress 591
8.4.2.7 Profit on the Contractor’s Costs 592
8.5 Incomplete and/or Defective Work 593
8.5.1 The Requirement to Complete and a Defects Liability Period 593
8.5.2 Potential Methods and Problems of Quantification 595
8.5.3 The Employer Choses to Instruct a Covering Variation 597
8.5.4 The Employer Requires the Contractor to Complete or Remedy the Work 599
8.6 Omitted Work 605
8.6.1 The Power to Omit Work 605
8.6.2 How to Value Omissions 606
8.6.3 Giving Omitted Work to Others 609
8.7 Post-Handover Costs 611
8.8 The Costs of Preparing a Claim 614
8.8.1 A Claim Under the Contract 615
8.8.2 Breach of Contract 616
8.8.3 Costs Incurred in the Contemplation of Legal Proceedings 622
8.8.4 In-House Management Time 623
8.9 Errors, Omissions and Contradictions 627
8.10 Summary 631
9 Minimising the Consequences of Change 633
9.1 Introduction 633
9.1.1 Constructing the Team 635
9.1.2 Rethinking Construction 636
9.2 Contract Preparation 637
9.3 Alliance, Partnering and Framework Contracts 639
9.3.1 Partnering 639
9.3.2 Alliance Contracts 641
9.3.3 Framework Agreements 642
9.4 Early Warning Systems 643
9.4.1 Trend Analysis 647
9.5 The Claims Industry 648
9.5.1 The Numbers Game 648
9.5.2 The First Number 649
9.5.3 The Claims Industry and Experts 649
9.5.4 Resolving Disputed Claims 651
9.6 Summary 652
Appendix A Example of Financial Accounts 655
Appendix B Example of Management Accounts 657
Table of Cases 659
Index 667
Circa l’autore
JOHN MULLEN is a chartered quantity surveyor and civil engineering surveyor, with 40 years’ experience in the construction and engineering industries. John was one of the founders of Driver Group PLC, creating many of its businesses, and has been its individual largest shareholder and UK and Middle East Managing Director. He has an international reputation as a quantum expert witness in litigation and arbitration around the world, on matters up to US$2.25 billion in dispute.
R. PETER DAVISON was one of the founders of Driver Group PLC and is former head of its expert witness business, DIALES. Peter originally trained as a quantity surveyor and is a former Chartered Quantity Surveyor and Chartered Arbitrator, who established a reputation as an objective, experienced and reliable expert witness on quantum matters.
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