How do you know what compensation you may be entitled to in a construction delay claim?
Knowing what you’re ‘owed’ in a construction claim can be difficult to fully understand. It is an area where plenty of claims consultants promise the earth, but the reality is that what you can claim and what you think you are entitled to may not the same thing. For example, how do you know what compensation you may be entitled to in a construction delay claim?
In a seminar with our team in the Middle East, one of our specialist claims consultants, David Kelly, discussed the chemical make-up of prolongation claims and compensation, as well as some of the more esoteric heads of damages, which we will be following up here on our blog over the coming weeks.
Specialist claims consultant, David Kelly
For context, a little about David before we start. David is an eminent construction industry professional, with a background in quantity surveying. In 2015 he was awarded the prestigious Construction Week Qatar Magazine “Construction Executive of the Year” award. He has also written and published a number of books on depreciation of built assets and unabsorbed head office overheads, as well as having written numerous articles covering aspects of construction and dispute related matters.
In a book by Joe M. Powell of Rice University Building Institute called The New Competitiveness in Design and Construction, David was described as one of 80 International Market Leaders in the construction industry globally. In 2000, David was awarded the AIQS’s President’s Medal for services to the profession.
Defining a construction delay and the right to compensation
The definition of a construction delay and the consequential right to compensation was enshrined in case law like the damages case Robinson v Harman 1 Ex Rep 850 in 1848. The English contract law case surrounded the agreement of Mr Harman to lease a house in Croydon at £110 a year from Mr Robinson. Then Mr Harman changed his mind and refused to complete the lease. It turned out the house, which he had recently inherited, was worth much more than £110 a year.
It became known for the surmise of barrister and judge James Parke, first Baron Wensleydale, that:
“The rule of the common law is, that where a party sustains loss by reason of a breach of contract, he is, so far as money can do it to be placed in the same situation, with respect to damages, as if the contract had been performed.”
Of course, as time has gone on and more cases have shaped the legal processes around claims, this defining moment has been honed and developed. Another key case was Hadley v Baxendale in 1854, which raised the question of whether a defendant in a breach of contract could be held liable for damages that the defendant was not aware would be incurred from a breach of the contract.
The conclusion was that:
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”
How does that apply today?
Today the rule of thumb is that unless expressly provided for in the contract, compensation for prolongation is not due for anything other than work actually done, the time actually taken up, and/or the loss and/or expense actually suffered by the claimant. In other words, except for situations where variations to the build have been applied, you can only claim compensation for actual additional costs incurred.
While all jurisdictions have their own variations on judgements, our conversations on this particular occasion related to our clients in the Middle East. So it seems fitting to reference article 263 of Qatar Civil Code, which says that:
“The court shall calculate the indemnity unless such calculation is provided in the contract or by the law. Indemnity shall cover damages incurred by the obligee/creditor, including loss of profit, provided that such damages or loss of profit are a natural consequence of the obligor/debtor’s failure or delay to perform the obligation. Damages shall be deemed consequential if they were reasonably foreseeable or within the contemplation of the parties at the time of the conclusion of the contract.”
How are prolongation or construction delay damages calculated?
It all hinges on the nature of the damages. This is important because exclusion provisions in a contract may affect the ability to recover indirect and consequential losses. It’s also crucial because the evidentiary burden of proof can be different for indirect and consequential losses. Also, Some jurisdictions will simply not entertain consequential or indirect losses.
That said, SCL Protocol states that once it is established that compensation for prolongation is due, the the sum due is calculated in relation to the period when the effects of the construction delay were felt, as opposed to referring to the build time in the contract. Alternatively, the prolongation damages can relate to the cost to the contractor, which they would not have incurred had the employer’s delay not happened.
This is where it gets into minute details, which can take some time to agree upon as figures are a combination of what’s due, what’s been paid and what has accrued as a result of delay. This could include anything from the general running of the site such as travel costs, recruitment costs, staff salaries and accommodation. It may even include extra consumables such as coffee for the team. There’s also adjustments to insurances or costs to financing to consider, as well as materials, equipment hire or other items for the build itself.
It goes without saying that every claim has its own details to contend with, and depending on which part of the world a claim is being fought in, the parameters of what you are entitled to can change. However, the important thing is that firstly, there is a route to resolving claims, should you choose to take it.
The second is that while a claim may seem like a relatively simple thing to resolve yourself, the days of DIY defence are long gone and the chances are that by fighting it yourself you will only add to your stetted budget
Finally, it’s important to have a realistic expectation of what is possible from a claim. If a damaging construction delay has occurred you should absolutely be able to claim compensation. However, it may not be for the full amount of the cost. So when speaking to a claims consultant, it’s important to find someone you trust, and to get a sense of what’s likely rather than what’s desirable, so that you don’t risk walking away with nothing at all.