In my last article, 014, I emphasised that the financial assessment of delayed preliminaries is not always based on cost and this article provides a scenario based on case law where, even though the contractor’s entitlement was pursuant to the loss and expense provisions of the contract, the assessment was based on the rates included in the preliminaries section of the subcontract document. The case law scenario also examines the evidence used by the subcontractor making the claim (a print-out of its accounts records) to support the claimed amount and whether that evidence was acceptable to the court.
The type of evidence used by the subcontractor is particularly interesting as the same type of evidence in this case is typical of what I see when acting as third-party neutral deciding disputes, and also as expert witness when I’m instructed to assess submissions for additional costs due to delay and disruption. When I act as expert witness, or as a preparer of submissions, I endeavour to interrogate and/or provide a further level of supporting evidence to a print-out of accounts records provided by the subcontractor in this case law scenario; for example, evidence on a spot check basis that the costs in the contractor’s accounts records were in fact incurred rather than solely relying on a print-out of accounts records.
Subsequent articles will examine in more detail the financial assessment of delayed preliminaries on a basis other than cost, and also examine issues in relation to the applicable period(s) during which the contractor’s entitlement to financial recompense due to the delay costs should be assessed.
I emphasise that the basis of entitlement, whether it be cost, pre-determined rates, or other, will be determined, in the absence of agreement between the parties, by the applicable contract provisons, or in the absence of such contract provisions, the applicable/governing law.
Case law scenario: Ascon v McAlpine
This scenario is based on Ascon v McAlpine[1] and is in relation to the assessment of recoverable loss for delayed preliminaries items. In this case the defending party was McAlpine, the main contractor and the claiming party was Ascon. Ascon was McAlpine’s reinforced concrete subcontractor for the floor slabs, basement perimeter walls, and upright columns between floors on a five-storey building.
The subcontract works were delayed, and, among other issues, the parties were in dispute as to the duration of extension of time to which Ascon was entitled to and corresponding entitlement to financial recompense for the delay.
The court awarded Ascon an extension of time of 14 days and said that it was not in dispute that Ascon is entitled to delay damages to the extent of any recoverable loss which it can establish was caused by that period of delay.
Plant, site staff, and overheads
The evidence of quantum was entirely that of Ascon’s accounting records.
It was common ground in this case that loss is normally quantified in terms of a daily or weekly rate for recoverable expenses. McAlpine argued that one of the heads of claim was not recoverable and also that Ascon’s quantum expert had not produced evidence to support his conclusions.
In the absence of evidence from McAlpine’s own expert, its legal counsel suggested, as the “safest route”, the rate implicit in Ascon’s tender figure for preliminaries being: Ascon’s tender figure of £190,570.73 for preliminaries, from which £6,900.00 for concrete testing was deducted as not being time dependent, leaving £183,670.70 for a contract period of 27 weeks. This amounted to £6,802.66 per week, being £1,236.84 per day. Ascon’s counsel conceded that, to any sums otherwise recoverable, an addition of 5% should be made for overheads, which brought the daily rate to £1,298.68, rounded up to £1,300.00, giving a total for 14 days of £18,200.00.
McAlpine’s legal counsel accepted that plant, site staff and overheads in principle were recoverable but attacked Ascon’s expert’s figures on the following two main grounds:
Ascon’s expert relied on computer print-outs and did not conduct his own independent investigation; and
Ascon’s expert’s use of average figures derived from the whole contract period.
McAlpine’s first objection
In relation to McAlpine’s first objection, the court accepted Ascon’s expert’s evidence and said:[2]
“…he did independently investigate and vouch three totals. The first was the overall costs of the job. The second was for labour. The third was for plant and materials (not, I think, confined to this job). He satisfied himself that in each of these three categories his figure and Ascon’s agreed to within an acceptable margin of error; in the case of labour it was some £3,000 out of £800,000 (3.75%) and in the case of the overall total some £40,000 out of £2.6M (1.54%). He did not, because of the difficulty and cost of such an operation, verify any further breakdown, in particular the allocations to site staff and overheads, which were simply those produced by Ascon’s computerised accounting system.”
In the court’s view, what Ascon’s expert did was reasonable, and said that, in the absence of fraud, which was not suggested, it is appropriate to draw the inference that the breakdown produced by Ascon for its expert was the same as that used for Ascon’s own management and cost control purposes.
McAlpine’s legal counsel raised the objection that there was no direct factual evidence of any of the expenditure. However, the court said:
“It is true that technically the entries in Ascon’s accounting system, and even the invoices and wage records which [Ascon’s quantum expert] did inspect, are hearsay evidence. It is, however, unheard of in my experience for strict proof, of the kind required (apart from statutory exceptions) in criminal courts, to be regarded as necessary in substantial construction industry litigation. The documents on which [Ascon’s quantum expert] relied were disclosed on discovery and available to the quantity surveying expert witnesses on both sides on the understanding that they would form the basis of their evidence on the quantum of Ascon’s claim, in the same way as no doubt McAlpine’s documents did in relation to its counterclaim.”
McAlpine’s second objection
McAlpine’s second objection was in relation to Ascon’s expert’s use of average figures derived from the whole contract period. McAlpine argued that the cost of site staff, for example, should be taken as at the periods of delay, at or near the beginning of the contract period, when staffing was at a low level. The court considered that there was some force in this argument in principle, but emphasised that neither McAlpine’s expert nor anyone else provided the court with a calculation on the basis which McAlpine’s counsel says should have been adopted. Further, McAlpine’s counsel’s suggestion of deriving a daily rate from the tender preliminaries itself adopts the “average” approach. The court therefore said that it would not make any exact arithmetic adjustments to Ascon’s expert’s figures but would take them into account in its final assessment.
McAlpine’s other criticisims
McAlpine advanced other criticisms of some parts of the detail of Ascon’s quantum expert’s calculations, for example, that his figures for site staff and overheads for the first week of the contract should have included time before the contract works began, when Ascon carried out work which should have been done by others, and for which it was paid outside the contract. Once again, the court had no basis for exact adjustments and simply took these points generally into account as part of a broader approach.
Court’s assessment: plant and site staff
Ascon’s total claim calculated by its quantum expert was £228,381.36, but this amount included labour. The court deducted £135,040.79 for labour, making a total of £93,340.57 for plant and site staff, made up as follows:
£15,668.35 for plant; and
£77,692.23 for site staff.
The amount of £93,340.58 is calculated on the basis of a claim for 39 days of delay which equates to an average daily rate of £2,393.34. The daily rate of $2,393.34 comprises:
£401.75 per day for plant; plus
£1,991.57 per day for site staff.
The court considered that “some deduction” should also be made to take into account the above-mentioned considerations and said it could consider McAlpine’s quantum expert’s figure for site staff and overheads of £1,298.68 per day to be a cross-check on Ascon’s figure of £1,991.57 for site staff.
The court proceeded to decide:[3]
“Taking all these considerations into account I assess the total daily rate for all these items at £1,800.00, giving for 14 days a total of £25,200.00. I appreciate that I have in this process apparently included the element of averaging somewhat disparaged in paragraph 43 above, but as already explained that has been allowed for in the case of site staff and overheads by the deduction which I have made. In the case of plant [Ascon’s quantum expert’s] figures are for specific periods and ought strictly to be dealt with separately as between water ingress and lift pit availability, but I am satisfied that the amounts involved would be so small that any such exercise would not be justified, and would indeed be misleading as suggesting an exactitude which for the reasons I have given is unattainable.”
The court therefore took Ascon’s quantum expert’s daily rate of £1,991.57 for site staff and £401.75 for plant and made a broad based downwards adjustment to £1,800.00 to take into account the lower levels of staff during the period of delay at the beginning of the project and the time worked by Ascon before the contract work started. The court then multiplied the rate of £1,800.00 per day by the 14 days delay to arrive at an amount of £25,200.00 for plant and site staff.
Court’s assessment: head office overheads
Although head office overheads are dealt with separately in later articles, it is convenient to deal with this issue in relation to this scenario here.
It was common ground between Ascon and McAlpine that head office overheads were recoverable and should be quantified by taking an appropriate percentage of the total so far arrived at.[4] The parties also agreed that the cost of insurance is to be included in the overheads whether or not it is strictly classified as part of the overheads. The remaining issue was the rate to be used.
Ascon’s expert calculated a total of 7.33%, being 6% for overheads plus 1.33 % for insurance as these were the rates in Ascon’s tender breakdown. McAlpine’s expert allowed 5% for both overheads and insurance, being the rate in McAlpine’s counterclaim.
In the court’s view, both rates were within the “bracket” of reasonable values for the purposes of assessing Ascon’s loss. The court broadly accepted the rates in the tender breakdown but rounded them up to 7%.
This brought the amount the court awarded for damages to £26,964.00, that is, £25,200.00 for plant and site staff plus £1,764.00 for overheads and insurance.
Pro-rata using the average preliminaries rates for the whole contract period
An assessment based on rates from the contractor’s preliminaries carried out as follows:
i. Total contract price for the preliminaries for the whole contract period;
ii. Less the fixed-price items leaving only the time-related items;
iii. Divided by the contract period in days; and
iv. Multiplied by the period of delay in days to give the claimed amount.
would be a suitable approach where:
i. The parties have agreed to the procedure either in the contract or at any other time after entering the contract; or, where there is no such agreement:
ii. Where the contract provides for the rates in the preliminaries section of the BQ to apply; and
iii. The preliminaries project spend is a linear / even spend during the entire contract period from start to finish.
Arguably, the above would not apply, or be appropriate, where the contract expressly provides entitlement to cost/expense and the parties do not subsequently agree otherwise.
Further, preliminaries across the whole contract period will usually fluctuate. Therefore, if average rates for the whole contract period are to be used, they will most probably need to be adjusted to take these factors into account.
NEXT ARTICLE
My next article on the contractor’s entitlement to financial compensation/recompense due to delay will again consider a case law scenario where the basis of assessment is a basis other than actual costs incurred, and also considers the applicable period(s) during which the delay costs should be assessed.
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[1] Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd 1999 WL 1610677. [2] Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd 1999 WL 1610677 at [40]. [3] Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd 1999 WL 1610677 at [48]. [4] Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd 1999 WL 1610677 at [49].