I am passionate about dispute avoidance and at Brant, we do all we can to support our clients so as to avoid formal dispute resolution. However, in these strange times, what happens if you are in the receipt of a claim, or formal dispute proceedings, such as Adjudication, Mediation or even litigation?
Claims for Cash flow
Parties in the contractual chain may look to claims as a source of cash flow because payments are being delayed, or simply not made.
‘Claims for cash flow’ is a troubling title, that echoes the perceived adversarial nature of our industry. Unfortunately, with Contracts being delayed, cash flow is slowing and this could be an unwelcome prophecy.
Covid-19 and Construction Quantum
Firstly, I will not discuss Force Majeure here. This has been discussed at great lengths by Construction Lawyers and Expert delay analysts. It is also for Construction lawyers to discuss and advise on the contractual rights and remedies of the parties under a Main Contract or Sub-contract.
I will stick to my specialist subject of quantum, accepting that projects have and continue to be delayed as a result of Covid-19.
I have read countless articles since this pandemic began, with many taking a punt on what will be the new normal. It is certain that in the short term, we are in the eye of the storm and there are some practical steps that you can and must take to protect yourselves in terms of dispute avoidance and if faced with defending that claim that may be around the corner.
One thing is already clear, as the government furlough scheme comes to an end, some Contractors and Sub-Contractors are making redundancies. This can leave these businesses exposed during future contract disputes. So, here is the first practical step – protect your project data!
Records – Records – Records / Protect that data!
The very first training seminar I attended as a young trainee QS, was titled ‘Records-Records-Records’, and here in 2020, as a result of Covid-19, I am advising you of very similar steps that one can take to protect oneself.
Site progress photos, daily site diaries, progress meeting minutes, applications for payment and valuations, to name a few, can all be used as critical substantiation of fact. Unfortunately, with staff leaving, this can be lost too easily. Too often, data is still stored on individual laptops and not on data servers or collaborative software that allows access to crucial parties.
So transfer and back up that data before it is lost. Once you have access to this crucial data, trying to decipher/ understand it is often more difficult, without a complete handover, which seldom occurs. It is therefore also important to maintain a good relationship with these staff members who can potentially be brought back in to provide support in the event of a claim and could even provide a case changing witness statement.
So now you have the data, and you understand it, or at least maintain contact with its author, let us now think about what to do in the event that you must promote a claim.
Let us assume that the lawyers have successfully established liability (time and cost) and you are claiming an extension of time and then Loss and Expense, and let’s assume that the expert delay analysts have identified the period(s) of delay.
I have seen a wide range of what the industry believes is required for the substantiation for Loss and Expense. Some adopt the back of a fag packet approach, which is most definitely not advised and nearly always unsuccessful, and some adopt the belt and braces method with complex spreadsheets and hundreds of pages of appendices. Here is the second practical step – seek expert help.
Loss and Expense – Expert help
It is critical that you obtain expert professional advice early in the process, often this saves time and cost and ensures that you take the necessary steps to protect yourselves. Brant often act in an advisory capacity with the client carrying out the lion’s share of the work, therefore reducing our cost.
Typical heads of claim for a loss and expense account (as recognised in the Society of Construction Law Delay and Disruption Protocol, 2nd Edition) are:
- Preliminaries
- Dedicated Head Office Overheads
- Unabsorbed Head Office Overheads
- Loss of Profit
- Disruption
- Financial Charges
- Cost Increases
- Claims Preparation Costs
It is certain that one must provide the level of detail and substantiation sufficient to convince the other side and/or an Adjudicator (in the event of an Adjudication), that your heads of claim and cost build ups are i. accurate and ii. based on fact. You must also evidence cause and effect and that the costs claimed represent actual losses and/or expenses.
Without any doubt, these are strange times and we have a rocky road ahead of us all. Taking these steps early can go some way to placing yourself in an advantageous position should you find yourself trying to recover monies rightfully owed to you, or if the prophecy of ‘claims for cash flow’ become true, you find yourself defending a claim.
Ian Brant
Construction Quantum Expert