Background

We were instructed by lawyers acting for the Responding Party, to act as independent quantum experts in an adjudication.

Our Client was a large M&E Sub-Contractor appointed to carry out large scale electrical sub-station works at a high security specialist facility. It engaged the Referring party under an amended NEC3 Sub-Contract to supply steel modules and support structures.

Our Client issued a ‘notice of immediate termination of the Sub-Contract’, which the Responding party accepted.

A previous adjudicator’s decision declared that our Client’s termination notice was a repudiatory breach, entitling the Referring party to accept the breach and determine the Sub-Contract, which it did.

The Claim

The Referring party therefore sought recovery of damages totalling circa £400,000, flowing from the breach. It claimed this under the following heads of claim: –

Damages for Loss of Contract
A Lost profit on SC Sum
B Lost profit on unvalued Variations

Loss Caused by Breach
C Claims preparation costs
D Referring parties managerial costs/lost contribution to OHP

Unpaid costs / Accrued Rights
E Unpaid costs / accrued rights

Lost contribution to overheads/managerial expenses to date of termination
F Lost contribution to overheads/managerial expenses to date of termination

We considered the claim on the following basis: –

‘The objective of damages awarded for breach of contract is to put the claimant as near as possible in the same position as it would have been if it had not sustained the wrong for which it then seeks compensation or reparation.’

In respect of each of the above heads of claim, We concluded the following in oury expert report as follows: –

A – Lost profit on SC Sum

  • The Referring party claimed a gross margin of 25% on the entire Sub-Contract Sum
  • We calculated the gross margin, based upon the average of the last three years’ audited accounts and then only applied this to sums not paid to date. This reduced the value of the claim by circa £90,000.
  • The Adjudicator accepted my valuation

B – Lost profit on unagreed Variations

  • The Referring party again claimed a gross margin of 25%, this time of the valued of unagreed variations.
  • We concluded that there was no evidence to support the value of the unagreed variations and indeed that there was no evidence that the claims were actually valid variations.
  • The Adjudicator agreed that there was no evidence of entitlement in respect of the variations.

C – Claims Preparation Costs

  • The Referring party claimed the costs incurred for the claims consultant that it had engaged.
  • In our opinion the Referring party had failed to demonstrate that the costs claimed flowed from breach
  • The Adjudicator agreed with our conclusion

D – Referring Parties Managerial Costs/Lost Contribution to OHP

  • The Referring party claimed for managerial costs which they stated flowed from the claim.
  • We reviewed the documents provided and determined that whilst it was possible to verify the hours claimed, it was not possible to assess what works were carried out and therefore whether it flowed from the claim.
  • The Adjudicator agreed with our conclusion

E – Unpaid costs / accrued rights

  • The Referring party claimed the difference between its costs incurred to the date of termination, the sums paid at that point in time.
  • We verified that the costs claimed were substantiated and correct, save for a number of duplicate items where costs were being double claimed.
  • However, we concluded that based upon witness evidence the Referring party had not achieved a number of deliverable milestones and had therefore incurred more costs than anticipated in reaching the point in programme it was at when termination occurred. As a result the Referring party was considered to have been recompensed already for the works it had completed.
  • The Adjudicator agreed with our conclusion

F – Lost contribution to overheads/managerial expenses to date of termination

The Referring party claimed for overheads by reference to the costs of specific members of staff.
In our opinion, as the costs claimed are overheads, they were already recovered through the gross margin claim under item A.
We considered it reasonable that some of the costs should have been considered as management costs, in which case the claim should have been framed as one for accrued costs. Having assessed these costs and made the appropriate adjustments we provided an alternative valuation.
The adjudicator accepted our valuation.

Conclusion

The Referring party claimed for circa £400,000 including interest. Our review concluded an entitlement to £140,000, which the Adjudicator adopted, agreeing entirely.

Categories: Case Study