Claiming for managerial time to prepare a claim

When a claim is mounted, whether in litigation, arbitration or by way of CIPAA proceedings, obviously there would be hard costs involved. These would include costs paid to consultants, lawyers, Court fees, payments to the arbitrator or adjudicator as well as payments to the regulatory bodies like AIAC or PAM.

In addition to these hard costs, there would also be soft costs involved. By these I mean the cost of managerial time required to prepare a claim. Obviously the more complex the claim is, the more managerial time would be incurred.

Query: Can a company claim for managerial time incurred to prepare a claim?

One interesting case on this point would be that of Aerospace Publishing Ltd v Thames Water Utilities Ltd.

Aerospace Publishing is a publisher of aviation and military history. They stored their archives of photographs and reference materials in a basement, which unfortunately was flooded. Thames Water Utilities Ltd was responsible for the flooding of the basement.

Aerospace Publishing sought to claim as damages its staff costs required to prepare its claim. Thames Water Utilities disagreed. After all, such staff costs would be incurred in any event.

The UK Court of Appeal however allowed the claim. However, the Court imposed the condition that in order to succeed in such a claim, there must be evidence that the managers involved in preparing the claim were diverted from their other work, and that if the diversion did not occur, they would have generated revenue to the value that is at least equivalent to their cost of employment.

Hence, whilst managerial seems prima facie to be claimable, however the claim would be subject to somewhat stringent conditions, which most litigants may not readily fulfill.

Kheng Hoe Advocates is a firm of construction lawyers in Malaysia. Presently, a lot of our work revolves around CIPAA claims. We can be contacted at khenghoe@khenghoe.com. 

Overcoming CP requirements for expense claims

Condition 11.7(a) of the PAM Form (2006) requires the Contractor to give written notice of its intention to claim for additional expenses together with an initial estimate duly supported by calculations within 28 days of any Architect’s instruction. This notice is said to be a “condition precedent to any entitlement to additional expenses that the Contractor may have under the Contract“.

The PAM Form goes on in Condition 11.7(b) to require the Contractor to submit complete particulars of its claim within 28 days of completing any variation works, otherwise “it shall be deemed that the Contractor has waived his rights to any such additional expenses”.

Query: Is this notice requirement to be strictly observed?

Of course, in many instances, the Architect by his conduct may have waived the strict requirements of Condition 11.7, for instance when the Architect proceeded to consider the loss and expense claim notwithstanding the claim being made late.

The situation is more tricky when the Architect did not waive the requirements, i.e. when the Architect required strict compliance and rejected the expense claim solely on the ground that the claim was made late.

One possible argument to overcome this “condition precedent” clause is to make a claim that is not under the Contract, i.e. to mount the claim for expenses as a general claim for damages for breach of contract. Such a claim, arguably, would be one that is not made under the Contract, i.e. one is not relying on the express terms of the Contract for entitlement to claim.

The courts always seek to limit the scope of any exclusion or limitation of liability clause. Hence in Maidenhead Electrical Services, a clause that renders any claims not received within 28 days to be “automatically invalid” was held by the Court to not apply to claims for damages for breach of contract.  Also, in Amec Process & Energy Ltd, a clause which disallowed a claim for price adjustment without meeting strict conditions was held to be not worded sufficiently to remove a claim for damages for breach of contract.

Of course, whilst the above cases may support a contention that a claim may still lie in damages notwithstanding the wording of Condition 11.7(a), yet the contractor would still have to grapple with the wording of Condition 11.7(b), whereby it is said that the Contractor is deemed to have waived its right to additional expenses. Would the argument fly to contend that such waiver is only a waiver of claims “under the Contract“, and similarly would not apply to a waiver of a claim in damages?

That would be an argument for another day.

Kheng Hoe Advocates is a firm of construction lawyers who handle CIPAA, arbitration, litigation and mediation of construction disputes. We can be reached at khenghoe@khenghoe.com. 

When are variations not variations?

A construction contract typically contains a variations clause, allowing for the SO to instruct for variations to the works. These variations can take the form of additions or omissions, and at times may be substantial in nature.

But can a contractor contend that a variation order is in fact NOT a variation, but constitutes an entirely new or replacement contract? A contractor may want to advance such an argument in one of the following circumstances:

Firstly, where the contractor faces a substantial omission variation, resulting in the balance of the contract works to be unprofitable or at the very least unpalatable at the contract rates. In pricing for a contract, it is common practice for contractors to price certain items at better margins, whilst allowing for thin margins or even losses in some items in the quantities. Imagine a situation where the better-margin items are omitted leaving the unprofitable balance of works. A contractor would want to argue for the balance works to be paid at a fair price instead.

Secondly, say that variation works are ordered for entirely new works not envisaged by the original contract (albeit for the same project). For example, an apartment project receives a variation to include an entirely new recreational complex for sporting facilities. Whilst the contractor may be willing to undertake the works, the contractor must nevertheless balance that against the need to complete the works on a timely basis, as well  as to consider whether these new works are acceptable to be carried out under the contract rates.

Thirdly, where the variations are within the scope of the contract works, but there are so many variations ordered to the extent that there is a substantial increase in technical queries, and number of construction drawings to be complied with (in the case of McAlpine Humberoak Ltd v McDermott International, the number of drawings increased from 22 to 161, yet the Court of Appeal dod not agree that the original contract has been replaced). A contractor placed in such a situation may contend that what he originally tendered for has changed so substantially that he cannot possibly be tied down to the original contract rates.

In USA, the trend is to consider cases with overly substantially variations to be an abandonment or cardinal change of the original contract works, beyond the reasonable expectation of parties at the time the contract was entered into. Consequently, such abandonment or cardinal change would allow the contractor to argue for payment on the basis of quantum meruit or fair rates (as opposed to the contract rates which may be relatively depressed). It is important to note that there is no need for the employer to in fact intend to abandon the original contract, because such intention is implied from the conduct of the employer.

Thus far, I am not aware of any such argument being mounted successfully in Malaysia as yet. At most, variation works that did not fall within the scope of the contract would be priced at fair market rates, but there does not seem to be much readiness to re-price the rest of the contract works on the basis of abandonment or cardinal change.

For the appropriate case with the right factual matrix, the USA position would be an interesting proposition to make.

Kheng Hoe Advocates advise primarily contractors in CIPAA, litigation and arbitration of construction disputes. We can be reached at khenghoe@khenghoe.com.