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Dealing with Loss and Expense
in Construction
Tony Ward FRICS, FCIOB , MCIArb
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Web Class Objectives
By the end of the Web Class you will:
Understand the Principles of Loss & Expense
Be aware of Contract Provisions
Understand Contractor’s 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
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3
About You?
Using the chat facility, please
indicate which side of the
construction industry you are
from. Client,
contractoror ….?
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Loss & Expense - What is it ?
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2.
1.
1. Loss
2. Expense
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Loss & Expense - What do
you think it is?
Please answer in the chat facility
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Loss & Expense – Why is it paid ?
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It is paid by the client in order to put the Contractor’s cash
position back to where it would have been if the Breach of
Contract did not arise
It reimburses financial losses and expenses incurred bythe Contractor
Breach of Contract is typically an Extension of Time
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Loss & Expense – How is it calculated?
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fi nd out for cert ain
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Loss & Expense Procedures
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• Contractor makes application for Loss & Expense as soon as it
becomes apparent
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• Architect instructs Quantity Surveyor to ascertain Loss & Expense
• Quantity Surveyor typically seeks further information fromContractor
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• Contractor provides further information
• Quantity Surveyor ascertains Loss & Expense
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Top Tip – A Good Contractor’s
Notice
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The Relevant
Matter
The Cause
and Effect
Supporting
information(if available)
Reference to
documentsand records
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Top Tip – Contract Provisions
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Loss & Expense – Contract
Provisions
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Loss & Expense – Top Tip !
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When can loss and expense be ascertained?
http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=aDwpdtRyKEi8cM&tbnid=jb66z8sujM1xkM:&ved=0CAUQjRw&url=http://webclipart.about.com/od/Calendar_Clip_Art/ss/2013-Calendars_4.htm&ei=ZVS4Udj-BoGn0AXwhoHoDA&bvm=bv.47810305,d.d2k&psig=AFQjCNFnmArXkNXUx7sDcBCfwSY_Z_Zj7g&ust=1371121118955635
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Loss & Expense – Heads of
Claim
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Typically Heads of Claim include :-
Site Preliminaries Prolongation
Site Preliminaries “Thickening”
Head Office Overheads
Increased Costs
• Disruption Costs
Finance ChargesSubcontractor Claims
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Loss & Expense -
Preliminaries
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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 & ExpenseSite Preliminaries Prolongation
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• Relates to the extended period of time that Prelims arekept 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”
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This relates to extra over Prelims required on site as a result of abreach of contract by the Client
For example :-
Architect issues 100 variations for finishes in 2 week periodMajor changes
Therefore additional Site Manager brought in to manage that
process and those changes
This additional Site Manager is termed as “PrelimsThickening”
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Loss & Expense – Top Tip
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Cause & Effect Schedules are ideal for demonstrating Loss & Expense
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Loss & Expense
Head Office Overheads
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Loss & ExpenseHead Office Overheads – Actual Recovery
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For this you need :-
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Loss & Expense
Head Office Overheads
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Formula Approach
Emden
Hudson
Eichleay
On a scale of 1 (novice) to 10
(expert), how familiar are youwith these approaches?
Please type in the chat facility
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Loss & Expense
Head Office Overheads
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Emden Formula
h x c x pd
100 cp
h = Head office percentage
c = Contract Sum
cp = Contract Period
pd = Period of Delay
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Loss & Expense
Head Office Overheads
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Hudson Formula
HO/Profit% x Contract Sum x Period of Delay ( weeks )
Contract Period ( weeks )
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Loss & Expense
Head Office Overheads
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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
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In order to succeed, a Contractor has to prove
there was other work available which, but for thedelay, 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
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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
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• 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
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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
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Ensure subcontractor proves cause and effect
Seek copies of time sheets, wages slips, etc.
When submitting Subcontract Claim to PQS, consider anyattendances 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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L & E
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Loss & Expense -
Demonstration
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Costs EventsNarrative
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Summary
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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 RecordsMethods of demonstrating Loss & Expense
A Q i ?
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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