Last edited 14 Sep 2016

Loss and expense

Construction contracts will generally provide for the contractor to claim direct loss and / or expense as a result of the progress of the works being materially affected by relevant matters for which the client is responsible, such as:

  • Failure to give the contractor possession of the site.
  • Failure to give the contractor access to and from the site.
  • Delays in receiving instructions.
  • Opening up works or testing works that then prove to have been carried out in accordance with the contract.
  • Discrepancies in the contract documents.
  • Disruption caused by works being carried out by the client.
  • Failure by the client to supply goods or materials.
  • Instructions relating to variations and expenditure of provisional sums.
  • Inaccurate forecasting of works described by approximate quantities.
  • Issues relating to CDM.

Claims may comprise costs resulting from disruption to the works or from delays to the works (prolongation).

The contractor must give written notice of a claim as soon as it becomes reasonably apparent that the regular progress of the works is being materially affected. This need not necessarily result in a delay to the completion date, and so claims for loss and expense and claims for extensions of time do not necessarily always run together.

Claims are restricted to 'direct' loss and expense and so 'consequential losses' (such as lost production) are generally excluded. Direct losses are those that 'flow naturally' from the breach of contract. There is disparity between contract types about whether items such as head office overheads can be included in claims for loss and expense, and some court rulings have allowed such claims. If there are specific consequential losses which the parties to the contract wish to exclude, it may be prudent therefore to state these explicitly within the contract.

NB The New Engineering Contract (NEC3) contains provision for the contractor to claim payment for 'compensation events' rather than loss and expense.

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