Claim Class presented its 2-day intensive training course on Construction Claims in London on 29 and 30 September. One subject that resulted in quite a heated debate was whether the costs of preparing a claim, either employee time or by specialist consultants, are recoverable? Do such items come under the heading of ‘loss and expense’ for the purposes of a claim?

My opinion was that such costs are not recoverable. Other delegates at the event considered that they are legitimately claimable. In fact, several delegates advised that they had been successful in recovering such costs. I promised to do some investigation and report my findings on our blog, so here is the result of my research.

As is often the case in such matters… it depends.

What Do Others Say?

My ex-boss Roger Knowles, in his book 200 Contractual Problems and their Solutions makes reference to several legal cases. He summarises:

‘It appears unlikely that, in the absence of express terms in the contract which give an entitlement to payment, the cost of producing documents in support of a claim which is a requirement of the conditions of contract … will be recovered. In providing this information, the contractor or subcontractor is merely complying with the requirements of the contract’.

‘Where the conditions of contract require the architect or contract administrator, having received notice and details from the contractor or subcontractor, to ascertain loss and expense, any failure to ascertain will constitute a breach of contract by the employer. The costs of further preparation work regarding a claim, if it results from the breach, may well be recoverable’.

‘If it can be shown that, prior to service of an arbitration notice, the preparation of the claim is in contemplation of such arbitration, the arbitrator may, in exercising a discretion with regard to the award of costs, include the cost of preparing the claim. The [UK] courts have now accepted as part of a claim for breach of contract the costs of managerial time spent in investigating the breaches and maintaining records.’

The Society of Construction Law’s Delay and Disruption Protocol agrees with Roger, at item 1.20:

‘Most construction contracts provide that the Contractor may only recover the cost, loss and/or expense it has actually incurred and that the be demonstrated or proved by documentary evidence. The Contractor should not be entitled to addition costs for the preparation of that information, unless it can show that it has been put to additional cost as a result of unreasonable actions or inactions of the [contract administrator].’

So What is the Answer?

In summary then, the costs of preparing the initial claim are not recoverable.

But what if the architect, contract administrator or engineer fails to respond to the claim? Or if they make an unjust award under the terms of contract? This would constitute a breach of contract. In such a case, the costs incurred in pursuing the claim from this point onwards would be recoverable.

A word of practical advice though:

The breach argument would not be sustainable in a case where the contractor submitted an inadequately expressed claim. In such a case, the architect, contract administrator or engineer could reject it. This would be on the grounds of the claimant having failed to prove their case. The preparation of additional particulars in such circumstances would be regarded as the contractor merely fulfilling his contractual obligations.

Thank you to the London delegates for highlighting this matter. I hope this sheds some additional light on the subject. If you have similar questions you’d like answered, why not join one of our e-courses?