No doubt you have spotted that the title for this series of articles has changed. It now refers to the JCT DB 2011 contract. In June the JCT amended its design and build contract to address the changes to the Construction Act which will come into effect in England on 1 October. The good news is that the JCT has made only a few amendments to the loss and expense provisions. The bad(ish) news is that you may want to adapt the contract to make sure it works for you.
What is the purpose of the loss and expense provisions?
If the Works are delayed the contractor may incur additional costs as it will probably have to maintain its site office and other on-site facilities for longer than expected. The contractor may also incur additional costs where the Works are disrupted. For example, if the employer gives the contractor information late, the contractor may have to carry out part of the Works in a different order and that disrupted works may be carried out less efficiently.
The loss and expense provisions in the JCT contract (clauses 4.20 to 4.23) allow the contractor to recover its additional direct costs where the cause of the delay or disruption is a Relevant Matter (eg, an employer instruction). The direct costs often include the contractor’s site set-up costs, overhead costs, finance charges and loss of profit. Those costs can be significant and it is important to make sure that the loss and expense provisions work for you.
Timing of the loss and expense application is important, particularly where the employer amends clause 4.20 to include a short timescale. The recent case of WW Gear Construction Limited v McGee Group Limited (2010) confirmed that unless the contractor complies with the relevant timescales the employer does not have to consider the contractor’s application.
The contractor should also make sure that the application includes enough information so that the employer can ascertain the amount of the loss and/or expense. This can be more challenging for disruption claims as it can be difficult to attribute loss of productivity to a particular Relevant Matter, although good site records often help to manage this issue.
Some consider that the list of Relevant Matters favours the contractor and therefore the employer may want to amend that list. For example, some employers do not allow the contractor to recover any loss and/or expense for delay or disruption caused by dealing with fossils and antiquities on the site (clause 4.21.3). It is also usual for the employer to clarify that where there are two causes of delay or disruption, one of which is a Relevant Matter and one of which is a contractor risk, the contractor is not entitled to any loss and/or expense. Although recent cases suggest that this is the common law position, it is still prudent to spell this out. Clause 4.23 in some ways gives the contractor two bites at the cherry, as it allows it to make a claim for general damages in addition to its right to claim loss and/or expense under the contract. Consequently employers often delete this clause.
With only a handful of amendments the loss and expense provisions can lead to a fairer contract for both parties.
In the next issue we will consider the changes to the payment provisions.