Dealing with Loss and Expense

in Construction

Tony Ward FRICS, FCIOB, MCIArb

Web Class Objectives

By the end of the Web Class you will:
Understand the Principles of Loss & Expense
Be aware of Contract Provisions
Understand Contractors Notices
Demonstrate awareness of Heads of Claim
Learn Top Tips for Loss & Expense
Have knowledge of calculating Head Office Overheads
Understand Procedures for Demonstrating Loss & Expense

About You?
Using the chat facility, please
indicate which side of the
construction industry you are
from.

Client,
contractor
or .?

Loss & Expense - What is it ?

2.

1.

1. Loss
2. Expense

Loss & Expense - What do

you think it is?

Please answer in the chat facility

Loss & Expense Why is it paid ?

It is paid by the client in order to put the Contractors cash
position back to where it would have been if the Breach of
Contract did not arise
It reimburses financial losses and expenses incurred by
the Contractor
Breach of Contract is typically an Extension of Time

Loss & Expense How is it calculated?

find

out for certain

Loss & Expense Procedures

Contractor makes application for Loss & Expense as soon as it

becomes apparent

Architect instructs Quantity Surveyor to ascertain Loss & Expense

Quantity Surveyor typically seeks further information from
Contractor

Contractor provides further information

Quantity Surveyor ascertains Loss & Expense

Top Tip A Good Contractors

Notice

Reference to
The Relevant
documents
Matter
and records
Supporting
information
(if available)

The Cause
and Effect

Top Tip Contract Provisions

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Loss & Expense Contract

Provisions

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Loss & Expense Top Tip !

When can loss and expense be ascertained?

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Loss & Expense Heads of

Claim
Typically Heads of Claim include :-

Site Preliminaries Prolongation

Site Preliminaries Thickening
Head Office Overheads
Increased Costs
Disruption Costs
Finance Charges
Subcontractor Claims
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Loss & Expense Preliminaries

Preliminaries are :People and facilities required to carry out the works.
Site Manager
Site Huts
Tower Crane
Temporary Electrics
Welfare Facilities
Power and Water for the Works
Site Telephones etc

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Loss & Expense

Site Preliminaries Prolongation

Relates to the extended period of time that Prelims are

kept on site for the delay period
For example :

Delay of 6 weeks =

Site Manager x 6 weeks

Site Huts x 6 weeks
Welfare Labourer x 6 weeks
Etc, etc etc

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Loss & Expense

Site Preliminaries Thickening

This relates to extra over Prelims required on site as a result of a

breach of contract by the Client
For example :Architect issues 100 variations for finishes in 2 week period
Major changes
Therefore additional Site Manager brought in to manage that
process and those changes
This additional Site Manager is termed as Prelims
Thickening

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Loss & Expense Top Tip

Cause & Effect Schedules are ideal for demonstrating Loss & Expense

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Loss & Expense

Head Office Overheads

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Loss & Expense

Head Office Overheads Actual Recovery

For this you need :-

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Loss & Expense

Head Office Overheads
Formula Approach

Emden
Hudson

On a scale of 1 (novice) to 10
(expert), how familiar are you
with these approaches?
Please type in the chat facility

Eichleay

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Loss & Expense

Head Office Overheads
Emden Formula
h x
100

c x pd
cp

h = Head office percentage

c = Contract Sum
cp = Contract Period
pd = Period of Delay

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Loss & Expense

Head Office Overheads
Hudson Formula
HO/Profit% x Contract Sum x Period of Delay ( weeks )
Contract Period ( weeks )

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Loss & Expense

Head Office Overheads
Eichleay Formula
Rarely used in UK , it comes from an American legal case
involving the Eichleay Corporation

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Loss & Expense

Head Office Overheads
In order to succeed, a Contractor has to prove
there was other work available which, but for the
delay, he would have secured that work.

Top Tip
Contractor can do this by producing invitations to
tender and letters declining the tenders, as there
was not enough resources available.

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Loss & Expense Increased Costs

The Contractor may be entitled to increased costs
due to delays if :He would have purchased an item in 2010 for 10 and
then due to delays he purchased it in 2011 for 11.
Thus an increased cost of 1.
This is increased costs due to inflation
Invoices and Price lists can be used to demonstrate this

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Loss & Expense Disruption

Costs

Out of sequence working

Return visits
Trade congestion

Disruption very difficult to prove

Keep good records and allocation sheets

Take photographs
Mark up drawings showing dates of work done

Typically recorded on daywork

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Loss & Expense Finance

Charges
Delays typically cause Contractor to :Have cash flow disrupted
Get paid later for his works
Receive retention money later

Prove cause and effect and how long Contractor is stood out of
money
Bank charges,
loss of bank interest etc.
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How can the subcontractor

prove cause and effect?

Please answer in the chat facility

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Loss & Expense Subcontractor Claims

Ensure subcontractor proves cause and effect

Seek copies of time sheets, wages slips, etc.

When submitting Subcontract Claim to PQS, consider any
attendances Contractor has provided such as hoisting,
task lighting, etc.
Contractor only entitled to actual loss and expense
incurred

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Loss & Expense - Records

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Loss & Expense Demonstration

Costs

Narrative

Events

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Summary
Today we have discussed and experienced :-

Defining Loss & Expense

Contract Provisions & Relevant Matters
Cause & Effect & Schedules
Notices & their content
Heads of Claim and formulae
Loss & Expense Records
Methods of demonstrating Loss & Expense
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Any Questions ?

Thanks for attending , if you have to

disconnect before the end of the Q&A please
take a minute to complete the survey
by clicking on the link
located in the chat facilities

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