Contractual claim can be defined as a payable amount which is due to legal agreement between parties. Payment of this amount is mandatory for parties. In other words, contractual claim is money required to be paid for the purpose of security. Amount of contractual claim can be specified at the time of repayment of principle and other details. Generally, these kinds of claims arise form expressed terms of contract (Tomeczkowski, Wimmer and Pappert, 2014). Further, these are the most frequent kind of claims. These claims may relate to fluctuation, variations, extension of time and loss or expenses due to aspects influencing day-to-day progression of work. Present assignment report is focused on contractual claims related to loss and expenses. Report will include description of these claims and situation by which they arise. Further, consequences will be described regarding loss and expenses claim. For the prevention and reduction of such claim, suggestion will be provided in this report.
Loss and expense claim
Claim related to the loss and expense can be explained as the financial aspect arises due to 'delay' in completion of contract. However, delay cannot be considered as permanent reason for the contractual claim. It is because there can be occasional loss to the contractor. For example, contractor has accepted a clause of time extension in completion of project. This does not imply that he will be entitled for additional payment. In addition to this, amount of losses will not always be borne by employee. For example, if progress of project is not effective or less efficient due to result of actions of employer, then claim made by contractor will be on the base of disruption instead of delay (Skanska Construction UK Ltd v Egger (Baronry) Ltd (2004)).
In this claim, it is essential to recognize that disruption and delay are distinct conception. Delay is related to the time aspect while disruption is related to inefficiency of contractor or due to requirement of additional resources. Claim of delay is essentially due to prolongation. It is because certain resources can be required for longer period in comparison to term determined in deed. Claim for disruption is proved by showing that work is conducted in less efficient manner due to default conducted by defendant (Bensley, Lilienfeld and Powell, 2014). For this purpose, case of C & P Haulage v Middleton (1983) can be referred. In accordance with this case, contractor generally be allure for the exaggeration of his claim in terms of the loss suffered and extent of any delay. Thus, in this described case the Court of Appeal said that such approach will be given short shrift.
Claims regarding loss and expenses are related to the matter which directly affect the progress of work. In this kind of claim employer is responsible to provide remedy for the damages. For the successful claim employees are required to prove that loss is direct consequence of matter described in the claim (Mehta and et. al. 2014). For example, employer of the entity is not able to provide appropriate resources for the work which was previously agreed to be provided to contractor. In that situation contractor will able to recover expenses incurred by them to acquire that resources (London Underground Limited v Citylink Telecommunications Limited (2007)). In addition to this, contractor will also be able to claim reasonable cost due to delay in obtaining those assets. In this example, there are more chances for contractor to succeed in this claim if he makes clear presentation of data.
Situation in which these claims arise
In the following situations claims regarding loss and expenses can be raised:
Inappropriate use of labour and plant: Claim in this situation arises when utilization of human and infrastructure resources will not be according to the standard level. In this aspect resources are used by employer in optimum manner due to which cost is increased. For this purpose, contractor is required to produce evidence regarding standard level of output while preparation of contractual deed and other records (Tate & Lyle v GLC (1982)). In this manner, they will able to compare actual outcome with standard outcome in order to identify such scenarios (Roll, Schwartz and Subrahmanyam, 2014).
Running and standing costs of sites: These cost is related to the site office and staff cost. Running costs of the employer is directly affected by the production activities. While fixed costs, are not affected by the production activities of business (Shore v Horwitz Construction Co Ltd v Franki of Canada Ltd (1964)). As a consequence of Prolongation in a contract, situation of claim regarding loss and expenses can be raised. Generally this aspect arises in running cost (Gillies, 2004). It is because some of these items of cost is required for excessive period than the period being allowed in contractual deed.
Head of office overhead: This aspect will include expenses related to the maintenance of head office. Due to disruption and delay contractor may not be able to be part of other project. As a result, revenue of contractor will be reduce and simultaneously it will affect his recovery of overheads (Whittall Builders v Chester-le-Street DC (1985)). In this situation, contractual party is in position to make claim regarding losses or damages. Amount of claim will include potential turnover of contractor and its allocated overhead. Estimation of this amount will be done by considering previous revenues of contractor.
Loss of profit: Due to the aspect of prolongation in one contract, contractor will be prevented from accepting other contract. If individual is able to prove this aspect, then they will be entitled to make claim for the reimbursement of profits. This claim will be based on the situation because contractual claim regarding profit is not easily accepted (Sunley (B) & Co Ltd v Cunard White Star Ltd (1940)).
In the above described scenario, it is required to be noticed that acceleration cost occurred because of speeding up the progress of contract will not be recoverable. It is because, this is individual approach of contractual party adopted in order to meet the completion date (Middlemiss, 2011). Thus, employer will not be liable for this cost and as a consequence claim for such cost will not be accepted by them (Claims, 2014). If there will be above described situations then contractual claim can be made by party for loss and damages on employer.
Consequences of loss and expenses claim
Claim of loss and claim will directly affect the cost of contract. Employer of the entity will be required to pay higher charges in comparison to standard figures. Due to this fact, potential profits from project will be reduces which will have adverse impact on the stakeholder of entity. Further, project will not be completed standard time frame. Concurrent delay due to contractual claim is general in UK (Warren, 2012). Concurrent delay can be defined as a situation where various grounds of time lag are running in parallel. In addition to this, employer has also to face litigation issues due to which goodwill or reputation of employer will be adversely affected. Generally cost of litigation is higher in comparison to potential additional cost. For this purpose case of Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd and GEC Alsthom Ltd (1997) can be refereed. In this case study, it was noticed that cost of arbitration had incurred loss to the employer. Further, it was declared by the court of appeal that notice may be considered as a pre stipulation for contractual claim related to loss and expense claim in construction contract. By considering above described aspects, it can be noticed that success of project is adversely affected by contractual claim made by the contractor (Adamson and Morrison, 2011). Thus, appropriate actions should be taken by employees to prevent such situations.
Actions required to taken for prevention of such claims
Majority of claims arises due to pre-contract management between parties and poor procurement. By implementing following measures' employer will be able to prevent these kinds of contractual claims:
Preparation of clear designs: With the clear designs' employer will be able to provide better guidance for the completion of work. These designs should be provided in reasonable time period. It is because late design and changes will lead contractors to complete work in unproductive manner. As a consequence, work will not be completed in timely manner and contractor has to rebuild the completed works (Williams and Gaylord, 2009). This process will be are extremely expensive. Thus, it will be better to provide specific and appropriate design to contractor to avoid these issues.
Selection of qualified contractor: Employer should selected skilled contractor for the completion of project. Early tendering in the design process can cause disaster in future period. Generally employer completes their tendering process and too early and as a result they select wrong contractor (Laing Management (Scotland) Ltd v John Doyle Construction Ltd (Scotland) (2004)). It is done to reduce exploiting changes for increment of scope of profitability. However, profits attained from this process will not be able recover potential loss which can be incurred by the claim. Thus, by considering this aspect employer should avoid making poor choice of tenderer or successful bidder.
Standard form of contract: Further, standard form should be selected for the completion of project with the contractual party. For this purpose, employers are required to select written form of contract in order to avoid future contradictions. It is because, contractual deed work as evidence in situation of dispute between parties (Williams and Gaylord, 2009). By this deed employer will be able to proof their point in order to prevent occurrence of claim. In addition to this, if inappropriate standard form of contract is selected by employer than their organization has to face issued in future period. It is because, ill-advised amendments or partial bespoken contract are not considered by judicial party while resolving dispute between contradictory parties.
Reasonable terms of contract: Employer should include justifiable terms in contract which can be complied by contractual parties. For example, if employer refuses to provide reasonable time for the completion of project then there will be for sure delay. In addition to this, for this delay employer will be required to pay higher cost charges to provide compensation (Sisu Capital Fund Ltd v Tucker & others (2006)). There will no value deadline for completion of time is not readily achievable by the contractor. It is because contractors has to provide acceptance to the clause of unrealistic time constraint to attain the turnover (Good Practice Guide: Assessing Loss and Exp, 2012). However, they have to face issues in completion of project. Due to this disturbance contractor will request for the unreasonable extension of time.
By the conduct of above described action, employer will be able to reduce possibilities of contractual claims regarding loss and expenses to the certain extent. Further, it will also help them in management of variances. It is because actual cost of project will be in accordance with the budgeted cost (Claims,2014).
From the present project report, conclusion can be drawn that contractual claims regarding loss and expenses arises due to delay and disruption. Delay is related to the time aspect while disruption is related to inefficiency of contractor or due to requirement of additional resources. Primary reasons of claim are increment in cost, inappropriate utilization of available resources, delay in completion of activities and loss of profit. Contractual claim of loss directly affects the cost structure of contract. Due to this aspect, employer of the entity will be required to pay higher charges in comparison to standard figures. To prevent occurrence of these contractual claims, employer of the employer can recruit skilled contractor for the completion of project. Further, standard form should be selected for the completion of project with the contractual party. For this purpose, written form of contract can be selected in order to avoid future contradictions. There should be justifiable terms in contract which can be complied by contractual parties to prevent variance or major differences.
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