Extensions of Time, Loss and Expense and Global Claims

The recently decided case of Walter Lilly & Company Limited v Giles Patrick Cyril MacKay has clarified a number of issues relating to extensions of time, loss and expense, and global claims.  Some of these clarifications were just a restatement of the law as understood in England.  That had, however, been put into doubt by a Scottish case.  In the case of City Inn Limited v Shepherd Construction Limited the court held that where there was concurrent delay it was possible for the architect to apportion that delay between both relevant events and contractors’ delay.  The High Court has now clarified that this is not correct in England and that in such a situation the contractor would be entitled to an Extension of Time and Loss and Expense. 

It should be remembered that in most construction contracts, there is a process for allowing contractors extra time to carry out their works if “Relevant Events” occur.  Some of those relevant events will also entitle a contractor to loss and expense.  Relevant events will include delays in receiving instructions from the employer and also bad weather conditions.

There also may, of course, be delays on site due to the contractor.  For example, the contractor may not be able to provide sufficient labour or may not have organised materials to be delivered on time.  If a relevant event occurs at the same time as a contractor delay, the question is whether or not the contractor is still entitled to an extension of time.

Mr Justice Akenhead has made it clear that the City Inn case applies in Scotland only.  In England, if there is concurrent delay, one of which is a relevant event and one of which is not, then the contractor will be entitled to an extension of time based on that relevant event.

For some relevant events, a contractor may then be entitled to their loss and expense caused by the delay in carrying out the works.  The contractor will have to provide detailed information and material showing that the delay has caused the losses.  It has to be proved on the balance of probabilities that such loss and expense was incurred.

Claims for loss and expense are claimed usually in two ways: the first by identifying the specific cause of the delay and then identifying the specific losses caused by those delays; the second method is to use what is known as “global” claims, which had been considered very difficult to prove.

It had been thought that such claims needed the contractor to prove that the costs being claimed would not have been incurred in any event.  Also, it was thought that if in a global claim one element was not proved then the whole of the global claim would fail.  It was decided that in fact was not the case.

With regard to head office overheads and profit, the court considered the use of the “Emden Formula”.  This is a formula that has been devised to prove the losses incurred by the contractor for their head office costs and profit.  It was held that such formulas could be used to prove the value of the loss once it had been proved that loss had actually occurred.

Contractors may therefore wish to use the Emden Formula to calculate their head office and profit claims.  Direct costs that contractors incur as a result of delays on building sites would be added to this calculation.

The decision in the Walter Lilly case was welcome clarification of the law on these points and will benefit contractors in the future.