Contractor’s Loss and Expense claims under JCT Standard Form Building Contracts

In construction projects, delays and disruptions can lead to significant financial strain for contractors. Under JCT Standard Form Building Contracts, Contractors may be entitled to recover direct loss and expense incurred due to employer-caused delays, referred to as “Relevant Matters.”  

Understanding the contractual mechanisms for loss and expense claims is essential for both contractors and employers to ensure compliance and avoid disputes. This article explores key considerations, including proof of loss, common calculation methods, and the role of the contract administrator in the assessment process.

Loss and Expense

If a Contractor’s work is delayed or disrupted by matters for which the Employer is responsible (generally termed the “Relevant Matters” in JCT contracts), the Contractor is entitled to recover the “direct loss and expense” that it has suffered in accordance with the term of the Contract.  All the standard form building contracts published by the JCT contain broadly similar loss and expense clauses and these have been considered by the Courts on many occasions.

There is no particular magic to the term “direct loss and expense” in the contract: it is similar in meaning to the general damages recoverable for any breach of contract.  So a Contractor will be able to claim for such items as labour disruption, additional preliminaries (such as plant and supervision), additional protection of materials, impacted head office overheads and profit, and financing charges.

A Contractor must prove that it has suffered such loss and expense due to the occurrence of the Relevant Matters, and to do this (and satisfy the contractual loss and expense clauses) it must provide the information that is reasonably necessary to enable the Architect, Contract Administrator or Quantity Surveyor (A/CA/QS) to ascertain the amount of loss and expense that is properly due to the Contractor.

A Contractor may simply submit its claim in the form of a short spreadsheet or summary.  This is not adequate: full substantiating documentation must be provided.  For example, in respect of a claim for labour disruption, full labour records (such as time sheets, labour allocation records, payment records and the like) will be needed

Whilst the Contractor is required to provide proof that it has suffered loss and expense and information supporting its claim, it is generally accepted that proving certain elements of loss and expense will not be easy.  In view of this, loss and expense claims will frequently rely on the use of “formulas” to calculate certain items, the principle ones of which are the loss of contribution to head office overheads and/or profit.   Such use has been allowed by the Courts in a number of cases.

However, use of the formula is generally allowed to calculate the amount of the loss, rather than exempting the contractor from proving the fact of the loss.  So, for example, a Contractor might be able to show that delay and disruption suffered on a project increased the workload on the head office staff team to such an extent that new projects could not be tendered for, reducing its turnover.

If the Contractor can show that its sales have been reduced (as opposed to delayed) as a result of the delay and disruption on the project (for example, by pointing to opportunities they have not been able to pursue) it will probably be entitled to recover something in respect of overheads and profit, possibly on a formula basis, if they cannot calculate the actual loss.

Hudson Formula

One of the most widely used formulas is the so called “Hudson Formula”.  This covers lost overhead and profit, which is calculated as follows:

Head Office Overheads and Profit % x Contract Sum x Delay Period in weeks 

                                                        Contract Period 

A similar formula, the “Emden Formula”, covers overheads but not profit:

Head Office Overheads x Contract Sum x Delay Period in weeks  

                                                       Contract Period 

The JCT contracts generally give the A/CA/QS 28 days, from receipt of the Contractor’s initial assessment of loss and expense, to carry out their own assessment, and to provide the Contractor with that assessment.  This must be in sufficient detail to enable the Contractor to identify differences between the A/CA/QS’s assessment and the Contractor’s assessment.  It is arguable that 28 day period should only start to run when the Contractor has provided its initial assessment “together with such information as is reasonably required to enable the A/CA/QS to ascertain” the loss and expense in accordance with that clause.

In ascertaining any application for loss and expense, it is always necessary to ensure that there is no duplication of claimed amounts, either internally in the claim, or with any sums that are payable under any other provision of the JCT contract, for example the provisions governing the valuation of variations.

A Contractor may try to pressurise an Employer by threatening to terminate its employment under the Contract if loss and expense is not paid.  However, a Contractor has no right to be paid the amount of its claimed loss and expense.  On the other hand, it does have a right to be paid the amount of loss and expense as ascertained by the A/CA/QS, and failure to pay this will have serious consequences.

Under the JCT contracts, it is for the A/CA/QS to ascertain loss and expense.  It is important that any ascertainment (and also responses to the claim, requests for additional supporting information and the like) come from the A/CA/QS and not from the Employer.  The Employer has no standing to ascertain loss and expense, and any attempt to do so could give rise to an accusation that the Employer is interfering with the A/CA/QS.  This could justify the Contractor to terminate.

Conclusion

Effectively managing loss and expense claims under JCT contracts requires a structured approach to documentation, substantiation, and adherence to contractual procedures. Contractors must ensure that claims are supported with clear evidence, while employers and contract administrators must follow proper assessment procedures to avoid disputes.

By carefully implementing these provisions, unnecessary conflicts and costly legal challenges can be minimised, ensuring smoother project execution and fair compensation for affected parties.