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MANY disputes in construction involve the assessment of costs, item
by item. This can be difficult, since there is seldom a complete
record to prove each pound claimed.
Claims such as wasted expenditure, loss of profit and executive
time - that is, time spent by senior personnel not dedicated to any
specific project - are particularly difficult to assess, even
without the problem of double recovery.
The recent case of Bridge Communications v Abbey Pynford
illustrates how such claims will be dealt with. Bridge employed
contractor Abbey Pynford to install piled foundations in an existing
factory to support a 62-tonne printing press.
The floor slab should have taken 10 days but Abbey Pynford was
required to undertake remedial works, which caused a month's delay.
Dust generated by the remedial works had to be cleaned up and this
further delayed the installation of the printing press. Abbey
admitted liability, but challenged quantum. Three of the heads of
claim are of particular interest.
Bridge made a claim for executive time, which was not supported
by timesheets. The executive concerned had made a retrospective
assessment of the time spent by looking through the various
documents that recorded what happened.
Judge Ramsey followed previous court decisions in which it was
held that the cost of wasted staff time was recoverable even though
no loss , in the form of additional expenditure, could be shown.
The proviso was that it had to be demonstrated with sufficient
certainty that the wasted time was directly attributable to Abbey
Pynford's default.
Bridge had to be able to show some significant disruption to its
business and that staff had been significantly diverted form their
usual activities.
In this case, the evidence was that Bridge's turnover had
increased from about £2 million in 2002 to an estimated £10 million
in 2007. The executive whose time was at issue was the business
development director, so it was accepted that his time would have
been spent in selling and marketing, rather than dealing with the
problems caused by Abbey Pynford.
As to the valuation, Judge Ramsey accepted the method used to
assess the hours spent.
He referred to the 2001 case of Holman Group v Sherwood, where it
was held that in the absence of records, evidence in the form of a
reconstruction from memory was acceptable.
But Judge Ramsey observed this was an approximation of the hours
spent so he applied a discount of 20 per cent to take account of any
uncertainty.
For the hourly rate, the judge accepted a calculation based on
the executive's annual income from the audited accounts using 2,080
hours per year. He awarded £4,800.
The claim for wasted expenditure and profit was trickier and fell
into two parts.
The first part was the cost of outsourcing the printing work.
Due to the delay, Bridge had to send printing work to other
firms, which of course charged for the use of their printing presses
and operating personnel, together with a certain amount for
consumables such as ink, power and similar items.
The costs claimed by Bridge were based on invoices.
Bridge also needed transport to deliver paper and plates and to
collect printed material, and those costs were based on estimates of
rates per mile.
The second part of the claim was for the wages and national
insurance contributions of operatives engaged by Bridge to operate
the printing press and the hire cost of the printing press during
the delay.
The issue was whether Bridge could recover both parts of this
claim. The general position is that it is not possible to recover
both the gross return or profit expected under the contract and also
the wasted expenditure. A split claim is justified only if it can be
shown that there is no overlap.
The critical evidence appeared to be that if the printing press
had been operational, then Bridge would have been able to perform
the work that was outsourced and other work which it was unable to
accept.
This was shown by the increase in turnover once the press was
operational. Judge Ramsey held that Bridge was entitled to recover
the loss of profit on the outsourced work and the loss of profit on
the work it refused.
On the first part, the valuation of lost profit on the outsourced
work was based on the additional expenditure this entailed. Bridge
had already incurred the cost of the hire of the printing press and
the salaries of the printers and therefore the costs of the
outsourced printers were additional costs.
The judge made an adjustment of 15 per cent for consumables which
Bridge would have incurred in any event, and awarded nearly £24,000.
On the second part, the judge considered that it was likely that,
in the relevant period, Bridge had turned away more work than it had
outsourced.
Bridge had lost profit because it had incurred the rental value
of the printing press and the printers salaries without any return
for the work that would have been carried out had the press been
operational. This depressed Bridge s profits.
Judge Ramsey referred to the 2005 case of Carisbrooke Shipping v
Bird Part, in which there had been a loss of benefit of the work of
a superintendent's time when he was taken away from his usual
duties.
In that case, it was decided the cost of the employee s time could
be taken as an approximation for the loss of revenue.
Adopting that approach, Judge Ramsey assessed Bridge's loss of
profits as equal to 50 per cent of the rental charge and printers
salaries and accordingly awarded Bridge £10,881.
Finally, Judge Ramsay considered the claim for interest.
He ruled it should reflect the cost of borrowing. He referred to
Tate & Lyle Distribution v GLC (1982), in which it was noted smaller
firms could borrow at 3 per cent over the minimum lending rate. He
decided Bridge fitted this category.
Provided it is shown that there has been some loss caused, then
the court will try to value the loss. The principles are generally
applicable to construction. |