Prepared by : Assoc Prof Ngah bin Embong (UiTM)

Presented by :
Norsyakilah Romeli
(Provisional QS, RISM, BQSM)
Dip Qs, Bsc Qs, Msc Project Mgmt,
PhD Built Environment
 Main Categories:-
 CONTRACTUAL
 EXTRA-CONTRACTUAL OR EX-CONTRACTUAL

Other Categories:-
 QUASI – CONTRACTUAL (obligation as per
according to the parties)
 EX – GRATIA (moral obligation)
2
CONSTRUCTION CONTRACT CLAIMS
 Those claims which arise out of the express
provisions of the contract.

Can be sub-divided into:

 Claims for extra works – including variation

order.
 Claims arising from the provisions of the
contract for the contractor to be indemnified
by the employer for the “direct loss and / or
expense” which he suffers as a result of certain
events.
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CONSTRUCTION CONTRACT CLAIMS
  Fall outside the term of the contract.
 Claims for damages for breach of
contract i.e. common law claims.
 Stem from allegations that the express or
implied terms of the contract were broken
by the employer or his agent i.e. contract
administrator [under his control].
 Pursued before the court and can result in
a “declaration” or “injunction” either
mandatory/ prohibitive or;
 Order for specific performance for
monetary claims. 4
CONSTRUCTION CONTRACT CLAIMS
 An act of event from which, though not a
consensual contract, an obligation arises as if from a
contract.
 A quasi-contract, also an implied-in-law contract.
 It is a legal substitute for a contract.
 A quasi-contract is a contract that should have
been formed, even though in actuality it was not.
 It is used when a court wishes to create an
obligation upon a non-contracting party to avoid
injustice.
 Quantum meruit (a reasonable sum of money to be
paid for services not stipulated legally in the5
 Payment is one that is given as a favour or gift not
because it is legally necessary.
 Ex gratia is latin ('by favour') and is most often used in
a legal context.
 When something has been done ex gratia, it has
been done voluntarily, out of kindness or grace.
 Payment made without the recognising any liability
or legal obligation.
 For instance payment made to an individual in
respect of loss or damage to personal property in a
situation where the government accepts no liability
for the loss or damage but is willing to make some
reimbursement without accepting liability.
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 DIRECT LOSS AND /
OR EXPENSE

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CONSTRUCTION CONTRACT CLAIMS
 Fundamental Terms
• Direct : a direct and natural consequences of a
breach of contract and does not cover any
indirect or consequential loss or damage
• Loss – Loss of money which ought to have been
received and expenditure of money which ought
not to have been expended
• Expenses : the actual disbursement

The granting of EOT is not a condition precedent to

the recovery of direct loss and expense

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 Ground for claim for loss and
expense
• Suspension of works
• Direction regarding disputes with neighbor's
• S.O’s instructions
• Contractor not receiving instruction on time
• Delay in executing work by others
• Suspension of Works

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 DIRECT LOSS AND/OR EXPENSE
 Clause 24 in PAM
 Clause 31 in CIDB
 Clause 44 in PWD/JKR
Recovery of loss and/or expense by the contractor is
equivalent to damages at common law (Wright Ltd
v PH & T (Holdings) Ltd (1968)
The term used in PAM and PWD/JKR contract
reflects the various heads of claim which are
available at common law (FG Minter Ltd v Welsh
Health Tech Serv Organisation (1980)
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CONSTRUCTION CONTRACT CLAIMS
 PAM FORM
Clause 24.1 to be discussed.

Under clause 24.1, the important point to

remember under this clause is that it is only if the
“regular progress of Works…has been or likely to be
materially affected” that the contractor can be
compensated.
If the regular progress of the works is not materially
affected e.g. because the contractor has time in
hand or has sufficient slack in his programme, the
happening of a relevant event entitles him to no
extra.
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CONSTRUCTION CONTRACT CLAIMS
 PAM FORM

Further, under clause 24.1, in certain

circumstances only (24.3), the
contractor is entitled to extra payment
i.e. “direct loss and/or expense…for
which he could not be reimbursed by a
payment under any other provision in
this contract.

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CONSTRUCTION CONTRACT CLAIMS
 PAM FORM
A claim under clause 24.1 can only arise as a direct
consequences of one of the fourteen (14) specified
matters including defaults by the employer
generally (clause 24.3 (g)).
The loss and/or expense must be have been
caused directly by the event relied on.
In Saintline v Richardson, Westgarth & Co (1940),
Atkinson, J. stated that “direct damage is that
which flows directly from the breach without
intervening cause and independently of special
circumstance while indirect damages does not so
flow”.
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CONSTRUCTION CONTRACT CLAIMS
 PAM FORM

In conclusion, clause 24 provides an alternative

means of recovery to a claim for damages at
common law.

It does not affect the contractor’s right to common

law claims.

The benefit of claim under clause 24 is that

contractor receives payment through contractual
mechanism.

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CONSTRUCTION CONTRACT CLAIMS
 PWD FORM
• This provision is under clause 44; Claim for Loss and
Expense. The events for compensation are as stated under
sub-clause 43.1(c),(d),(e),(f),(i).

• The new form (PWD 2007) makes the giving of notice

(within 30 days of the occurance of the event) and full
particulars as a condition precedent to an entitlement to
direct loss and expense.

• The new form also requires the contractor to submit

particulars of his claim for direct loss and expense which
accords with the practice in the industry.

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 HEADS OF CLAIMS

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CONSTRUCTION CONTRACT CLAIMS
 HEADS OF CLAIMS

1. Cost of preparing the claims

2. Site overhead
3. General overhead
4. Loss of profit
5. Loss of productivity
6. Increased cost
7. Financing charges
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CONSTRUCTION CONTRACT CLAIMS
Head office overheads and profits

Head office overheads are made under two quite

distinct bases:
• The ‘opportunity cost’ methods based on formula
approach or;
• Actual increased overhead cost expended as a result
of delay. This is subject to proof that the expenditure
had in fact been incurred, or was likely to be incurred.

Which is the more correct method?

Depends very much on the merits of each case,
bearing in mind the wording of the contract and
evidences available.

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 The Actual Cost Approach
This approach simply identify the cost of the actual head
office overheads affected by the delay. Only the additional
cost actually incurred as a result of the delay on the
project are claimed.

The difficulty arises in identifying the increases

expenditure directly and indirectly arising from the delay
on the project in question.
generate time sheet for
key head office staff
The ‘Actual Cost’ approach

global claim
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 Case : Global Claim
In Mid-Glamorgan Country Council v J Devonald Williams
& Partner [1992] 8 Const LJ 61, after considering Crosby
(J) & Son v Portland UDC [1967], Merton London
Borough Council v Stanley Hugh Leach Ltd [1985] and
Wharf Properties Ltd v Eric Cumine & Associaties (No 2)
[1991] the judge conclude that:

“where however a claim is made for extra costs incurred

through delay as a result of various whose consequences
have a complex interaction that renders specific relation
between event and time/money consequence
impossible or impracticable, it is permissible to maintain
a composite claim”.

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Case : global claim (cont’d)

• In the absence of detailed knowledge of how

the engineer distribute his grants of extension
of time, coupled with the “knock-on” effect of
delays, it renders specific relation between
delay and money consequence impossible such
that a composite claim is justified.

• In the recent case of How Engineering Services

Ltd v Lindner Ceilings, Floors and Partitions plc
[1999] TCC 24 June a global claim approach
was found acceptable in the circumstances.
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 The lost opportunity approach

Use of formula

Most contractor prefer the lost opportunity

approach which uses a formula for its
calculation. A formula calculation is simple,
cheap, and quick and procedures a
reasonable sum of money for very little
effort.

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 In recent years, some of the more fundamental criticisms
levelled at the Hudson formula have been that:
 It assumes the profit budgeted for by the contractor in his prices
was in fact capable of being earned by him elsewhere had he
been free to leave the delayed contract at the proper time.
 At best it requires adjustment to be made for the various factors for
which recovery is not permitted, e.g. the contractor's own
inefficiency.
 It ignores the contractor's duty to make realistic attempts to deploy
his resources elsewhere during any period of delay.
 The value of the final account may well exceed the contract sum.
Thus, any proper valuation for variations must include an element
of reimbursement for overheads and profit and hence there is risk
of duplicating recovery.
 The use of the formula as it stands results in profit being added to
the profit already in the contract sum so that, at the very least, the
Hudson formula as first set out should read `Contract sum less
overheads and profit' rather than `Contract sum'.
 The formula can also produce under-recovery where inflation
during the period of delay increases the overhead costs envisaged
at the time of tender. 23
CONSTRUCTION CONTRACT CLAIMS
 1. Head office overheads and profits
Wraight Ltd v PHT (Holdings) Ltd (1968)
The loss of establishment charges i.e. head office
overheads and profit were considered as direct
losses.
Where a project is delayed due to default of the
employer, the contractor’s is not earning anything
from the contract during the delayed period and thus
entitled to claim damages arising from being
prevented from earning elsewhere.
Common formulae used:
 Hudson formula
 Emden
 Eichleay
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CONSTRUCTION CONTRACT CLAIMS
 HUDSON FORMULA
First so called because it appears in the 10th edition of
Hudson’s Building And Engineering Contracts (p.599), the
formula has since been much critised. The formula was
expressed as:

HO/profit percentage X Contract sum X Period of

100 Contract period (e.g in weeks) delay (in weeks)

It is sometimes said that Hudson's formula has received judicial approval

and the judgments in J. F. Finnegan & Son Ltd v. Sheffield City Council (l989)
and Whittal Builders Co Ltd v. Chester le Street District Council (1985) are often
cited in support of that contention. On a close reading of those and similar
reported English cases, it appears that, strictly speaking, reference was not in
fact made to Hudson's formula. In Finnegan, having referred to Hudson's
formula the court then went on to apply another (the Emden) formula (qv)
which, unlike Hudson's approach, is based on a percentage taken from the
contractor's organisation as a whole. In Whittal the court adopted a formula
based on average and essentially notional figures. 25
CONSTRUCTION CONTRACT CLAIMS
In an attempt to improve upon the Hudson’s formula, an alternative was published in
“Emden’s Building Contrast and Practice”. Emden’s Formula is:

Head office percentage² × Contract Sum × Period of Delay

100 Contract Period

This formula has the advantage of using the Contractor’s actual head office/ profit percentage
rather than the one contained in the Contract and has received judicial support in a number of
cases, notably Whittal Builders Co Ltd v Chester-le-Street District Council [1985] and in J F
Finnegan Ltd v Sheffield City Council [1988] where Sir William Stabb QC, said:

“However, I confess that I consider the plantiffs’ methof of calculation of the overheads on the basis
of a notional contract valued by uplifting the value of the direct cost by the constant of 3.51 as
being to speculative and I infinitely prefer the Hudson (‘Emden’ was intended*) formula which, in
my judgement, is the right one to apply in the case, this is to say, overhead and profit percentage
based upon a fair annual average, multiplied by the contract sum and the period of delay in weeks,
divided by the contract period.
*the percantage based upon actual head office costs is Emden’s and not Hudson’s formula.

26
 2. Site overheads
These are direct expenses. These claims are
allowed on time variable components, for
instance:-

Maintenance of site Telephone

Buildings Site staff
Plant and equipment Insurance
Pumping and EPF
dewatering Site allowances
Electricity Travel
Water Etc.

27
CONSTRUCTION CONTRACT CLAIMS
 3. Idle plant and equipment
on site
a) Evidence of employment elsewhere, if no
delay, is necessary.
b) Absence of the above, assessment can be
made on the following basis:
 Depreciation during idling period.
 Financing cost of machine.
 Cost of maintenance.
 Wages thrown away.

28
CONSTRUCTION CONTRACT CLAIMS
 Example of calculation
Depreciation (example)
Cost of machine : RM 100,000
Interest on purchase : 10% p.a
Cost of maintenance : negligible (not in use)
Wages wasted : 1 operator @ RM 80/day
Idling period : 30 days
Assuming operator must continue and on standby:
Depreciation : say 20% per annum (if working)
or 15% per annum (when idle)
= 0.15 x RM 100,000
= RM 15,000 per annum
 Depreciation over 30 days = 30 x RM 15,000 = RM 1,233
365
• Interest (financial cost) = 0.10 x RM 100,000 x 30
365
= RM 822.00
• Cost of maintenance = negligible
• Wages thrown away = RM 80 + insurance, say RM 82/day
~ for 30 days = 30 x RM83 = RM 2, 460
• Total claim = RM 1,233 + RM 822 + RM 2, 460
= RM 4,515

Notes : 1) The rule of mitigation

2) For hired plant, the actual payment will be cost of hire.

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 5. Interest and financial charges
(cases)
There is now no doubt that a contractor is entitle to relief, by way of loss/or
expense, for the costing of financing. In the Malaysian case of Newacres
Sdn Bhd v Sri Alam Sdn Bhd [2000] 2 MLJ 353, Chong Siew Fai CJ of the
federal Court recognised a party’s right to interest. He held that “it is only
fair that interest be awarded against the person who wrongfully deprives
another from the use of the latter’s money”. Mere replacement of the
money after more than a decade is insufficient compensation. As such, the
landowner should be compensated by an award of interest for the loss
thereby occasioned to them.

This principle is further enunciated in the English case of F.G Minter Ltd v
Welsh Health Technical Services Organisation [1980] 13 BLR 1

30
 When ascertaining the cost of financing, the following should be taken into
account:

• The appropriate rate of interest is the actually paid by the Contractor provided it
is not unreasonable. In the event of the Contarctor paying well above or well
below prevailing market rates it seems from Tate & Lyle v GLC [1983] 1 CLD-08-07,
that appropriate rates are those “at which (Contractors) in general borrow
money”.

• The cost of finance shall be calculated on the basis it is charged by the

Contractor’s bank, i.e. using the same rates and compounding accrued interest at
the same intervals;

• Where the Contractor is self-financed or financed from within its corporate group
the appropriate rate of interest is that earned by the Contractor (or its group) on
monies it has placed on deposit;

• Account should be taken of actual negative cash flows by way of primary expense,
i.e. expenses are incurred progressively.

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 6. Cost of preparing the claim
Right to claim

The question often asked is whether the cost is recoverable as part of the
claim ascertainment and payment. There is no definitive “yes” or “no”
answer to question. Few examples in practice can be identified where cost
of preparing a claim have been certified and paid.

There is however, one reported case where court hade to decide whether a
claims consultant’s fees should be reimbursed to a successful claimant. The
case being James Longley and Co Ltd v South West Regional Health
Authority [1983] 25 BLR 56.

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 6. Cost of preparing the claim
(cont’d)
It would seem that when approaching the matter of matter of recovery of the
costs of preparing a claim, a number of questions should be addressed:

• It would seem unlikely that in the absence of express terms in the contract
which given an entitlement to payment, the cost of producing documents in
support of a claim as required by the conditions of contract will be covered. In
providing this information the contractor of sub-contractor is merely complying
with the requireements of the contract.

• Where the condition of the contract require the architect or engineer having
received notice and details from the contractor or sub-contractor to ascertain
loss and expense, any failure to so ascertain will constitute a breach of contract.

33
Cost of preparing the claim (cont’d)
Vincent Powell Smith in an article appearing in Contract Journal dated 30
July 1992 had this to say on the matter with regard to claims under JCT
80:

“if the contractor invokes Clause 26 and does what is required, the
architect is under a duty to ascertain to instruct the quantity surveyor to
ascertain whether loss or expense is being inccured and its amount. This
follows from the wording of Clause 26.1 which uses the word “shall” and
which thus imposes a duty on the architect, provided that the architect
has formed a prior opinion that the contractor has been or is likely to be
involved in direct loss and/or expense as a result of the specified event(s)
and which is not recoverable under any other provisions of the contract.

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 INTEREST CLAIM
ON DETENTION
OF DEBT

35
CONSTRUCTION CONTRACT CLAIMS
 It is established in common law that interest is
recoverable for the late payment of debt as
special damages but not under general
damages.

Two cases may be considered:-

A. MONEY DUE AND NOT PAID UP TO THE
COMMENCEMENT OF ARBITRATION/COURT.
B. MONEY DUE BUT PAID BEFORE
COMMENCEMENT OF ARBITRATION/COURT.

36
CONSTRUCTION CONTRACT CLAIMS
 A. MONEY DUE AND NOT PAID UP TO THE
COMMENCEMENT OF ARBITRATION/
COURT
Section 3 of IEM rules “…the date when the request of
arbitration is received by the respondent”]. This agree in
principle with common law in Nea Agrex SA v Baltic Shipping
Co Ltd & Anor (1975).
Although common law is against the granting of interest on late
payment of debts under general damages, interest may still be
payable, where appropriate, as special damages occurred as
a direct loss and/or expense (Wadsworth v Lydell [1981] CH).
Financial charges qualify as special damages. Interest awarded
shall only be simple interest and not interest on interest i.e.
compound interest.
37
CONSTRUCTION CONTRACT CLAIMS
 B. MONEY DUE BUT PAID BEFORE
COMMENCEMENT OF ARBITRATION/COURT

Guidance should be based on the case of

The Medina Princess (1962).

The arbitrator should not award interest on

sums for which he has not made the award,
though this is permitted under English
Arbitration Act 1950.

38
CONSTRUCTION CONTRACT CLAIMS
 The Medina Princess (1962)
Facts
 The plaintiffs were seamen of the Medina
Princess who claimed for unpaid wages.
 No defence was made and the defendants
paid the wages.
 The plaintiffs then submitted claim for interest
upon the sums claimed from the date when the
sums became due to the date of payments.
Held
Interest cannot be paid on sums which have
already been paid or which have not been
awarded by the court / arbitrator.
39
CONSTRUCTION CONTRACT CLAIMS
 CONCLUSION

40
CONSTRUCTION CONTRACT CLAIMS
 41
CONSTRUCTION CONTRACT CLAIMS