It’s common to see in most final account disputes involving claims for prolongation a “global” or “total cost” claim defence advanced by the employer. But what is the problem with a contractor making a global claim and, even more importantly, what exactly is a global claim? These questions were answered in the recent Walter Lilly case and the Court also provided some helpful guidance for contractors on how to bring a successful global claim.
In the Walter Lilly case the contractor requested, and was granted, extensions of time throughout the project. However, at practical completion the employer withheld LDs for late completion.
The contractor argued that it was entitled to extensions of time for the whole period of delay, while the employer alleged that the contractor was responsible for delays.
The contractor claimed:
- £1,429,177 for its own prolongation costs
- £678,251.98 in relation to sums paid or to be paid to its sub-contractors for delay and disruption
- £276,171.98 for its lost overheads and profit.
The employer argued that the contractor’s claims amounted to a “global claim”, which would be barred by authority.
What is a global claim?
In some circumstances a contractor may find it difficult to show that a particular breach by his employer caused a particular loss to the contractor. In that situation a contractor may try to claim its loss and expense in a single rolled-up claim. This is known as a global claim.
‘Global’ or ‘total’ costs claims are terms used to describe a contractor’s claim which identifies a number of causes of delay and/or disruption and the total of the contractor’s cost. From this figure the employer’s net payment is deducted and a claim for the balance is made, without attributing actual costs to individual events.
What is the problem with global claims?
The issue of global claims has been the subject of much conflicting discussion over the last few years and the Court in Walter Lilly took the opportunity to clarify the law on this area.
The major issue with global claims is that, normally, for a contractor to succeed with a claim for loss and expense he must show a causal link between the sums claimed and each individual event that has caused this loss. In a global claim the contractor does not, or cannot, demonstrate a direct link between the loss incurred and the individual events. In this way, employers often argue that the burden of proof is reversed because it is them, and not the contractor, who has to undertake a detailed analysis of the events and quantum to show why the global approach is not justified. Employers argue that this amounts to them doing the contractor’s job for it.
In the Walter Lilly case, the Court carried out a review of the case law relating to global claims and set out some guidance.
What is the current position as to how the courts will view global claims?
In the Walter Lilly case the Court set out 7 principles that a contractor must to satisfy to bring a successful global claim. These principles are explained below:
1 Claims by contractors for delay or disruption must be proved as a matter of fact
What this means is that the contractor has to demonstrate, on the balance of probabilities, that:
- Events occurred which entitled it to loss and expense
- Those events caused delay and/or disruption
- Such delay or disruption caused it to incur loss and/or expense.
Where the contractor is making a global claim, there is no requirement to go over and above this requirement and prove that it is impossible to link a particular breach with a particular loss in the normal way.
2 Any contractual restrictions must be complied with
Contractors should be aware of any contractual restrictions on global claims. If there are no such restrictions then the contractor simply has to prove his case on a balance of probabilities.
If your contract contains a contractual restriction then you must comply with all of the conditions otherwise claims under this clause will be barred.
3 Evidence required
There is no set way for contractors to prove the 3 elements set out at point 1 above. It is open to a contractor to prove its entitlement with whatever evidence will satisfy the tribunal on the balance of probabilities, this could include witness statements.
4 Evidential difficulties
The Court confirmed that there is nothing in principle “wrong” with a “total” or “global” cost claim. However, the Court pointed out that global claims do present added evidential difficulties which must be overcome. Namely that a contractor will have to establish that the loss which is has incurred would not have been incurred in any event.
This means that a contractor will need to demonstrate that its accepted tender was sufficiently well priced that it would have made some net return and that there were no other matters which actually occurred which were likely to have caused the loss.
In response the employer is likely to attempt to raise issues or adduce evidence that suggest that the accepted tender was so low that the loss would have always occurred.
5 Global loss caused by a series of events or factors
Essentially what the Court was saying here is that global claims are not all or nothing. Where there are a series of events or factors for which the contractor is seeking to recover loss and one or more of these loss elements cannot be recovered in the proceedings then these elements will be taken out of the global claim leaving the loss attributable to the events for which the contractor is entitled to recover loss.
This heading might be better explained by way of example.
A contractor’s global claim is, say, £1 million and it can prove that, but for one overlooked and unpriced £50,000 item in its accepted tender, it would probably have made a net return. In this case the global loss claim does not fail simply because the tender was underpriced by £50,000; the consequence would simply be that the global loss is reduced by £50,000 because the contractor has not been able to prove that £50,000 of the global loss would not have been incurred in any event.
Another example might be where there were events, during the course of the contract, which are the fault or risk of the contractor which either caused, or cannot be demonstrated not to cause, some loss. The overall claim will not be rejected but these events will be quantified either precisely or at least by way of assessment and deducted from the global loss.
6 Actual Loss
Obviously, there is no need for the court to go down the global cost route if the actual cost attributable to individual loss events can be readily or practicably determined. A contractor who seeks to pursue a global claim where he could otherwise seek to prove his loss in another way will not be debarred from pursuing his claim but it may be that the tribunal is more sceptical about the global cost claim if the direct linkage approach is available but not used.
7 Disentanglement caused by contractor
Finally the Court confirmed that the argument that a global award should not be allowed where the contractor has himself created the “impossibility of disentanglement” is wrong.
So where does the decision in Walter Lilly leave us in relation to global claims?
Well, there are 3 main developments in relation to global claims:
- It is no longer a requirement for a contractor to prove that it is impossible to link a particular event with a particular time/money consequence.
- Global claims are no longer likely to fail where they include a matter(s) for which the employer is not responsible. In these circumstances, the events for which the employer is not responsible should be deducted from the global claim.
- The contractor will need to provide proof that it would not have incurred the loss in any event.
Because of these developments it is likely that we will see a rise in the use of global claims. However, contractors should still continue to be wary about the use of global claims. Our advice is that global claims remain risky ground because they will always be subject to attack by the employer. Despite these developments a contractor will still have to prove his claim as a matter of fact which will still be a difficult task when there is a lack of direct causal links.
In order to avoid finding yourself in a situation where you need to make a global claim, contractors should maintain proper records. Site diaries, timesheets etc. may all be relevant evidence of a contractor’s entitlement to loss and expense.
Our final piece of advice is to watch this space as it is likely that we will see further developments on this area in the near future!