Reasons for construction contract claims

Construction projects rarely run entirely smoothly: additional works may be requested by the employer or become necessary when things are “discovered” on site; delays may mean the building takes longer to complete; or it may cost more than the parties originally contracted for.

Common claims include:

• A contractor may have a claim against the employer elating to a delay or a change in the works.
• A professional consultant may have a claim against the employer for non-payment of fees or breach of copyright.
• The employer may have a claim against:
  • the contractor for a delay to the works or a defect in the works; or
  • a professional consultant for failing to properly design or supervise the works.

Contractor claims from the employer

These can include claims for more time and money (loss and expense) and for the cost of changes to the works (as variations or “quantum meruit” – fair remuneration for work done).

Extension of time to the completion date

• The parties usually agree a completion date in their contract. If not, the contractor should complete its works within a reasonable time.
• Standard form contracts usually allow for the completion date to be adjusted, to award the contractor an extension of time. The contractor should comply with the contract procedure.
• It is not always easy to work out what caused the delay and whose fault it was; sometimes there are competing causes of delay. If the contractor caused the delay, the employer may have a right to claim liquidated damages from the contractor.

Claims for loss and expense

• A contractor often claims loss and expense at the same time as an extension of time. This is the “money” side of a contractor’s claim for delay and disruption (that is, a claim for the cost of inefficient working and employing more resources).
• Standard form contracts usually allow the contractor to claim for delayed or disrupted work. The contractor should comply with the contract procedure.
• A contractor may roll-up all the unattributed costs and claim them from the employer as loss and expense. If the claim does not break down the sum claimed between the contractor’s various complaints, it is called a “total cost” claim.
• Common heads of loss and expense claimed include:
  • prolongation costs;
  • finance charges;
  • loss of profits;
  • general disruption; and
  • wasted management time.

Claim for the cost of variations

• With a change, additional work or extras, a contractor may claim for a variation when the employer alters the contractor’s scope of work.
• Standard form contracts usually include a clause that defines what a variation is and provide a procedure to value the variation. If so, the contractor should comply with that procedure.
• Both parties may benefit from a clause permitting variations:
  • the employer can make changes so that it gets the building it wants; and
  • the contractor gets paid for providing extra or different work or materials.
• Claiming for variations often gives rise to disputes over whether:
  • the additional work is outside the original scope of work; or
  • the person who ordered the work was authorised to do so.

Claim for payment under a quantum meruit

• Under a quantum meruit claim, the contractor claims a reasonable sum for the work done and the materials it has supplied. The parties (or the courts) usually value a quantum meruit claim at a fair commercial rate.
• A contractor cannot claim a quantum meruit if the parties have a contract to pay an agreed sum, but it will be relevant if the parties have:
  • not agreed a contract or not agreed all the terms, including the price for the work; or
  • agreed to pay a reasonable sum for the work done; or
  • agreed a scope of work under the original contract and the work falls outside that scope (where the parties did not have or did not use a variation procedure in the contract).
• A contractor may sometimes claim a quantum meruit if it has worked under a letter of intent.

Employer claiming from the contractor

The employer may have a claim against the contractor because the works are of poor quality or defective, or because the project is delayed.

Poor workmanship and/or defects in the works

• Defective work frequently occurs in construction projects. Defects may range from small items included within a snagging list at practical completion, to significant but undetected (or latent) problems. A defect is generally a breach of contract by the contractor, but could relate to design that the contractor did not carry out, in which case only a professional consultant might be liable.
• Standard form contracts usually contain a defects liability clause that obliges the contractor to return to site, at its own cost, during the defects liability period or rectification period (normally 6 or 12 months) and remedy any defects that arise.
• A contractor who is responsible for design and construction of the works may be liable for a defect that is caused by negligent design, by poor workmanship, by poor materials or a mixture of all three.

Liquidated damages

• A liquidated damages clause (sometimes called LADs or LDs) compensates the employer if the contractor completes the work late. It requires a contractor to pay the employer a pre-determined rate of damages that should be a genuine pre-estimate of the employer’s loss.
• A liquidated damages clause is a common feature of many standard form contracts. The employer must ensure that it meets any contractual notice requirements in the contract before it claims liquidated damages from the contractor.
• The clause may be the employer’s only remedy for the contractor’s delay.
• The employer usually deducts or sets off the liquidated damages from sums it owes to the contractor.

Employer claiming against professional consultant

On construction projects, professional consultants often act as the contract administrator (valuing and certifying the works) as well as undertaking a design role. Generally, on building contracts, the professional consultant administering the contract is an architect; on engineering contracts, it is usually an engineer. Occasionally, the employer may appoint a project manager or quantity surveyor to administer a contract.

Professional consultants should perform their services in accordance with the implied or express duty of care in their professional appointment.

The professional consultant may be liable to the employer for failing to:

• Design the works in accordance with the professional appointment.
• Supervise the works in accordance with the professional appointment.
• Ensure the contractor built the works in accordance with the building contract.
• Certify the works properly (that is, it is alleged the professional consultant was negligent in certifying the works).

An employer claims its losses caused by a breach of contract or the negligence of a professional consultant as general (unliquidated) damages.

Professional consultant claiming against the employer

• If the employer fails to make payment, the professional consultant may claim for non-payment of fees. The parties may dispute whether a particular professional service was included in the fee agreed at the outset, or whether it was extra work.
• The professional consultant will usually retain copyright in the design and its plans and drawings; the employer is typically granted a licence to use these. If the employer does not pay the professional consultant, the professional consultant may argue that the employer’s use of the design is in breach of copyright.

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