Chapter 13: The money

Delay is a fact, not a legal claim. Nobody owes money merely because a job took longer than planned. A contractor who wants paying must point to something that entitles it: a clause of the contract, or a breach of contract by the employer. The Protocol says every claim must explain its legal basis, because delay, disruption and acceleration are not causes of action in their own right.

The first route is the contract. Most standard forms have a machine that pays for listed events. JCT calls the money loss and expense and lists the events as Relevant Matters (JCT DB 2016 cl 4.21). NEC4 has compensation events, assessed on Defined Cost. FIDIC pays "Cost", and for some events Cost Plus Profit (Red Book 2017, 1.1.19 and 1.1.20). The machine exists because many employer-risk events are not breaches at all. A variation is something the employer is entitled to order. As Akenhead J said in Walter Lilly, most of the listed matters are the "fault" or at least the risk of the Employer. The contract prices that risk in advance. Chapter 16 compares the forms.

The second route is damages for breach. It needs a breach: the employer failed to do something the contract required, such as giving access or information on time. Some events travel both routes. Late information is usually a listed matter and a breach as well. Coulson J noted in McGee v Galliford Try that the same claim will be routinely put in the alternative as damages for breach ([28]).

The proof is the same on both routes, and for the same reason: both compensate a loss that the employer's event caused. The contractor must show an event for which the employer is responsible, a loss or expense, and a causal link between them. Akenhead J took that formulation from Lord Macfadyen in the Scottish case of John Doyle, which applies to contractual loss and expense or a common law claim for damages alike ([480]). His own version adds the middle step: the events caused delay or disruption, and that caused the loss ([486(a)]). A different label does not lower the bar.

The measure is generally taken to be much the same, though the point is not free from argument. Coulson J described "direct loss and/or expense" as the financial loss flowing directly from delay and disruption, recoverable under the first limb of Hadley v Baxendale ([27]). That is the ordinary contract measure for losses that arise naturally from the breach. It was a description in a case about a liability cap, not a ruling on the measure.

The routes differ at the edges, and notices are the main difference. Contract machinery often makes a notice a condition precedent, and a missed notice bars claims under that clause "to that extent" (Walter Lilly [486(b)]; chapter 4). Whether it also bars damages for the same delay depends on the words.

The question matters because a notice gives the employer the chance to act while it can still reduce the delay. If the contractor could skip it by suing for damages, the notice would do little. JCT points one way: its loss and expense provisions "shall not limit or affect any other rights and remedies of the Contractor" (DB 2016 cl 4.23). In Tata v DBS, a bespoke IT contract, Constable J held that the wording caught both. Claims for loss and expense and for general damages at common law were subject to the notice regime, so far as they were for "Delays" as the contract defined them ([79]). Claims for non-critical delay or disruption fell outside it, but only as claims for breach, and that made no difference on the facts because the contractor had not split its quantum ([81]). NEC4 says the changes to the Prices and dates are the parties' "only rights in respect of a compensation event" (cl 63.6). I know of no case on what that does to a damages claim. Read the clause.

Before pricing anything, sort the contractor's costs by what drives them. The Protocol states the chain: delay causes prolongation, and prolongation causes increased cost. Prolongation is the extra time the works take, during which the costs of simply being on site keep running.

Costs have two main drivers. Some are time-related: they run for as long as the site is open, whatever work is being done. Site managers, cabins, security and welfare are examples. Others are task-related: they rise and fall with the work and with how productively it is done. Labour, productive plant and fuel are examples. The sort matters because each kind of delay money is made of different costs. Prolongation compensation will primarily comprise the contractor's extended use of time-related resources, notably its site overheads. "Primarily" is not "only": other losses can follow from the same delay (20.1).

Disruption money is mostly the other kind: the direct labour and plant doing the affected work. Supervision or standing plant can count as disruption too, but only where it was increased rather than merely extended. Even then the contractor must show the link between the extra cost and the lost productivity (18.14). A supervisor kept on for 4 more weeks because completion slipped is prolongation. A second supervisor brought in because the gangs were split across three areas is disruption, if the split is what lost the productivity. The job title is the same, but the claim is different.

The time and task sort is a working tool, not the Protocol's language. The Protocol classifies costs as direct and indirect, and counts on-site and head office overheads as indirect, whether time-related or otherwise (1.26). Some items go either way. Captive labour and plant, kept on site and paid for whether or not they are working, behave like time. Extra cabins for extra people follow the work. Argue those on the facts.

Prolongation cost is the cost of keeping the site open longer. It follows that only delay to completion carries it. A delay absorbed by float keeps nobody on site a day longer, so it causes no time-related cost. That is ordinary causation, and the Protocol says the same in programming terms: delays that move the completion date must, by definition, reside on the critical path (chapter 2).

Two qualifications follow from the same principle. First, unless the contract says otherwise, the Protocol would pay the costs of an employer delay that stops the contractor finishing by an earlier planned date, even though no extension is due. But that applies only if the employer knew, when it contracted, of a realistic and achievable plan to finish early (Core Principle 13; 13.2). Second, critical delay to one activity does not automatically carry the whole site's overheads. In Costain v Haswell, a contractor's claim against its designer, the deputy judge refused them because the contractor had not shown the delay in fact impacted on all the other site activities ([184]-[185]).

The measure is the actual additional cost. Compensation puts the contractor where it would have been without the delay, so the question is what the extra weeks really cost it. The Protocol's Core Principle 20 bases compensation for prolongation (other than for variations) on the actual additional cost incurred, unless the contract provides otherwise. The tender allowance for site overheads is not a cap. A contractor that under-priced its preliminaries still pays the real cost of every extra week, and the Protocol calls the opposite view a common misunderstanding (21.2). The tender matters elsewhere. In a global claim the contractor usually has to show its tender would have made some net return, or the loss may be its own pricing (Walter Lilly [486(d)]; chapter 12).

Price the weeks when the employer's event was felt. The resources kept on because of a delay are the ones on site when it happened. If the frame is held up in week 12, the cost is the cost of holding the week-12 site: a full management team, a tower crane, a busy compound. The thinner site at the end, with a few staff finishing snagging, is a different set of resources. The Protocol values prolongation by the period when the effect of the Employer Risk Event was felt, not the extended period at the end (Core Principle 22). This can cut either way. A costly commissioning team at the end would make the tail the dearer period.

For each window, multiply the weeks of critical employer delay in it by the time-related cost a week in that window, then add the windows. Take an invented job, separate from the model project in other chapters. Its employer causes 3 weeks of critical delay during the frame, when the site costs £18,000 a week, and 2 weeks during fit-out, at £30,000 a week. That is £54,000 plus £60,000: £114,000. Price all 5 weeks at the end-of-job rate of £12,000 and you get £60,000. Use the project average of £20,000 and you get £100,000. Both are wrong.

The weekly figures come from records made at the time. In Walter Lilly the contractor's costs sat in a cost system that the judge found reasonably sophisticated and contemporaneously maintained, cross-checked by a financial controller with people on site ([499]). He preferred it to the site signing-in book, which is "well known as likely to be discrepant" ([500]). Chapter 14 covers the records.

The same judgment shows how to price extra resources. Where an event made the contractor put more staff on, rather than keep the same staff longer, the claim is for thickening. Once the link between the event and the extra resource is proved, the cost is how many man weeks were needed, times the salary cost ([491]).

Staff time is priced at what the staff cost, not what the firm would bill for them. A charge-out rate carries profit and overhead recovery, and the loss is only the cost. A County Court judge said a charge-out rate is not a proper proxy for the cost of employing staff (Lumley Baxter [290]). That was said in passing, in a case that was not about construction, so it is persuasive only.

"Unless the contract provides otherwise" matters most under NEC4. It assesses a compensation event on the actual Defined Cost of work done by the dividing date and the forecast Defined Cost after it (cl 63.1). So forecast cost lets an event be priced when it happens. The Protocol wants the same for variations: price their time and disruption when each is agreed. Leaving the prolongation of many variations to the end is "not good practice" (19.6), and it tends to end in a global claim.

Disruption is lost productivity: the work takes more hours or more plant than it should, whether or not completion moves (chapter 11). It gives money only where the contract or the law does. The Protocol says compensation is recoverable only to the extent that the contract permits or there is an available cause of action at law (Core Principle 18). Not all lost productivity qualifies. Some of it is the contractor's own risk, such as its own poor planning or the ordinary learning curve.

The measure is the cost of the productivity actually lost: the gap between realistic and achievable productivity and that which was actually achieved on the affected work (18.9). The baseline is what the contractor would really have achieved, not what it hoped to achieve. So the tender is not automatically the baseline, since the employer should not pay for the contractor's optimism. For the same reason the Protocol does not recommend unsupported percentage additions (18.8). The productivity lost to other causes, including the contractor's own, must be excluded (18.6).

In practice the sum is the task-related cost of the affected work in the period, multiplied by the share of it lost to the employer's disruption. The share comes from an analysis such as the measured mile, which chapter 11 explains, not from a guess. Keep the share and the cost on the same base. Say a task was planned at 1,000 hours and disruption stretched it to 1,176. The 176 lost hours are 15% of the hours actually spent, but 17.6% of the planned hours. Apply 17.6% to the actual cost and you charge for about 207 hours: 31 hours too many.

Prolongation and disruption can reach for the same pound. A supervisor's cost for an extended, disrupted period may sit in both claims. Compensation pays for a loss once, so the Protocol says that where both claims are made a credit has to be given in the second for anything recovered in the first (Part A para 9). I'd give the credit on the face of the claim. It shows the tribunal that the overlap has been dealt with.

Head office overheads are the costs of running the business as a whole: rent, rates, directors' salaries, pension fund contributions and auditors' fees, among other things. They are different from site overheads, which belong in prolongation. They would be paid whether this job ran late or not. So where is the loss?

The answer is lost opportunity. A contractor pays for its head office out of the contribution its jobs make. If a delay keeps its team tied up on this job, it cannot take on the next one, and it loses that job's contribution and profit. In Walter Lilly Akenhead J described the loss as the loss of its opportunity to defray its head office overheads over those other projects, and the profit from those lost jobs ([540]). He said the claim was in truth more like a loss of opportunity claim ([549]).

That tells you what must be proved. The contractor must show, on the balance of probabilities, that without the delay it would have secured work producing a return over its costs ([543(b)]). The Protocol agrees: there must have been other work available that the contractor would have won (Part C, 2.7). Rent paid is not proof of loss, because the rent would have been paid anyway. The loss is the contribution that never came in.

In Walter Lilly the proof was a business story. The contractor's evidence was that it won about 1 tender in 4 between 2006 and 2008 ([544]). The opportunities it had declined were set out in detail on a schedule, and the market was relatively buoyant ([544]-[545]). The judge accepted that evidence. On the contractor's expert's calculation, the loss was £4,588.71 a week for 99 weeks. After credit for the overhead and profit recovered on the job itself, that came to £274,965.12 ([553]), a little under the £276,171.98 claimed ([540]). The judge held the claim "established in full" ([554]). The evidence came first and the number second.

Only once the loss is shown may a formula measure it. Akenhead J said a formula such as Emden or Hudson is a legitimate and indeed helpful way to calculate the return ([543(c)]). The Hudson formula takes the head office overhead and profit percentage from the tender, multiplies it by the contract sum divided by the contract period, and multiplies that by the period of delay. The Emden formula is the same, but uses the contractor's actual percentage. The Eichleay formula allocates the actual head office costs to the contract by its share of revenue, turns that into a daily rate, and multiplies by the days of compensable delay (Protocol, Appendix A).

Hudson measures what the contractor hoped to earn on this job; Emden measures what its business actually earns. The Protocol says a formula just serves as a tool once the loss is shown (Part C, 2.8). It does not support Hudson (2.10), prefers Emden and Eichleay (2.11), and suggests cross-checking one formula against another (2.12). So the court and the Protocol differ on Hudson. The Protocol is guidance, and says it is not a statement of the law.

Profit is the other open point. The Protocol says the lost opportunity to earn profit is generally not recoverable under the standard forms, so contractors usually claim it as damages (Part C, 2.4). Yet Walter Lilly allowed head office overheads and profit as loss and expense under a JCT form, once the lost work was proved ([543(a)-(b)]). Whether profit is available under your contract depends on its words.

An employer's event that holds up the main contractor holds up its subcontractors too. They claim from the main contractor, and the main contractor includes those claims in its own claim against the employer. The reasoning is ordinary causation. The main contractor's liability to its subcontractor is a loss that the employer's event caused, so it can be passed up like any other loss.

In Walter Lilly the contractor claimed £678,251.98 for its subcontractors' delay and disruption claims ([555]) and recovered £505,002.69 ([589]). Several of those claims had been settled. A settlement can be passed up if the need to settle was caused by the employer's delay and the settlement fell within the "reasonable range of settlement" ([564]). The range test is Ramsey J's in Siemens v Supershield: what reasonable people in the settling party's position might have agreed. The settling party need not prove it would have lost the claim. It must still show the breach caused the loss settled, and that the loss is not too remote ([80]).

Reasonableness is not the end of it. A court may apportion a settlement where part of it reflects something other than the employer's delay ([565]). One subcontractor in Walter Lilly had been on site 99 weeks longer than planned. Because the settlement might not match the employer's share exactly, the judge thought it safer to allow some amount off and allowed £300,000 ([569], [589]). The practical lesson is to keep the subcontract claims tied to the same delay events as the main claim.

Losses also travel down. A subcontractor who delays the main contractor causes it loss, and the subcontract usually lets the main contractor recover it. The JCT sub-contract covers the case where an act, omission or default of the subcontractor materially affects the regular progress of the main contract works. The loss and expense agreed as caused to the main contractor may be deducted or recovered as a debt (SBCSub/C 2016 cl 4.17).

The largest item is often the main contract's liquidated damages. Causation decides whether they pass down. In Fluor v Zhenhua the judge said the supplier would have been liable for 15 days of the main contract's liquidated damages, had its delay been critical ([611]-[612]). But the supplier's work was in float by then, because by then the critical path lay elsewhere, so the claim failed ([614]). A subcontractor's delay that did not delay main contract completion caused no liquidated damages. The statement about liability was not needed for the decision, so it shows the court's approach rather than a binding rule.

The employer's own delay money usually takes the form of liquidated damages, which chapter 9 covers. Two points belong here. Termination ends the parties' future obligations, including the contractor's obligation to finish, but not rights already earned (Triple Point [79]). So if the contract is terminated, liquidated damages ordinarily run up to, but not beyond, the date of termination (Supreme Court, [86]). After that the employer claims general damages under the general law, and must prove its actual loss.

Remoteness need not be an obstacle to a claim for a fall in value. Markets move, and the parties know it. A delay that exposes the owner to that movement causes an ordinary kind of loss. John Grimes v Gubbins was a developer's claim against its consulting engineer for a delayed development. The Court of Appeal held that a fall in market value during the delay was not out of the ordinary, and so not too remote ([27], [31]). The amount was left to be assessed.

Money paid late costs its owner something: the interest paid on borrowing to cover the gap, or the interest it could have earned. The law reaches that cost in three ways. The contract may fix interest on late payment (Protocol Part C, 1.3). Interest may be part of the loss itself, as finance charges. And a statute may let the tribunal add interest to the sum it awards.

Finance charges are a loss like any other, so they follow the damages rules. They are recoverable where the contractor shows that the loss has actually been suffered and that it was within the parties' reasonable contemplation when they contracted (1.4). The Protocol treats the second point as given in construction. Contractors, it says, need only establish that the loss was actually suffered (1.5). Minter, as described in Skanska v Egger, held that "loss and expense" included finance charges. Where the contractor's actual financing cost was compounded, finance charges forming part of loss and expense may be calculated on a compound basis ([392]).

The statutes give simple interest in court, and a wider power in arbitration. The High Court may add simple interest to a judgment for a debt or damages (Senior Courts Act 1981, s.35A). An arbitral tribunal may award simple or compound interest unless the parties agree otherwise (Arbitration Act 1996, s.49). The Late Payment of Commercial Debts (Interest) Act 1998 implies interest at 8% over base rate on a qualifying debt (s.1; SI 2002/1675 art 4).

But a debt arises only where a contractual obligation to pay is not met (Tata v DBS (interest) [33]). In my view that leaves real doubt whether loss and expense is a qualifying debt before it has been ascertained or certified. A substantial contractual remedy displaces the Act for the debt it covers. In Walter Lilly, base rate plus 5% on wrongful deductions was held substantial, although the statutory rate was "3% better" ([654]). A clause covering only interim payments does not displace the Act for other debts (Sisk v Carmel [72]).

When does interest start? The Protocol's answer is generally the earliest date on which the principal sum could have become payable: the date for payment of the certificate after the contractor applied (1.7). A tribunal may instead take a mid-point of the period over which sums fell due, as Walter Lilly did for the wrongful deductions ([655]).

The cost of preparing the claim is a different matter. The Protocol's view is that the contractor should not be entitled to additional costs for the preparation of the information that proves its costs. The exception is where the certifier's unreasonable handling of the claim put it to extra cost (Part C, 3.1). Most contracts require the contractor to prove its actual cost with documents, so proving it is part of the bargain. In Walter Lilly the judge thought, without deciding, that such costs could be a valid head of loss and expense. He could not unravel what the consultant had actually done, and allowed nothing beyond what was already in the preliminaries ([590]-[591]). The legal costs of court or arbitration are recovered, if at all, under the costs rules, where costs generally follow the event (CPR r.44.2; Arbitration Act 1996 s.61) (chapter 15).

Claims also have a time limit: six years from accrual on a simple contract, 12 on a deed (Limitation Act 1980, ss.5 and 8). When a loss and expense claim accrues depends on the contract.

Where the productivity figure comes from is chapter 11; what happens when causes cannot be separated is chapter 12. The records that make every number here believable are chapter 14.