Ascertainment of loss and expense

Clause 5 of the Joint Contracts Tribunal (JCT) Standard Building Contract With Quantities 2011 (JCT 2011) sets out provisions relating to variations and provisional sums generally, while clause 5.6 deals with the valuation rules. At clause 5.6.3.3 this includes allowances, where appropriate, for any addition to or reduction of preliminary items. This may include allowances for delay and disruption. All additional preliminaries associated with variations should be valued using rates set out in the contract bills where appropriate.

In M T Højgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd and others [2014] EWCA Civ 710 MTH had agreed to fix foundations for an off-shore wind farm using a particular barge called the ‘Lisa’. Unfortunately the Lisa was not adequate and was taking far too long. E.ON therefore omitted this requirement from the contract and themselves chartered a more capable vessel – the ‘Resolution’. In valuing the omission E.ON wanted to include all of the ‘saved’ damages and loss and expense. They valued the omission at 57.25 million Euros. M T Højgaard argued that only the contract allowance of 12.9 million Euros should be omitted. The court found in favour of M T Højgaard, although noting that if instead of omitting the ‘Lisa’ and chartering the Resolution themselves, E.ON had instead instructed M T Højgaard to replace the Lisa for the Resolution the financial effect may well have been different.

If the rates in the contract bills are not appropriate (see clause 5.6 and Henry Boot v Alstom Combined Cycles [2000]) and fair rates and prices are to be used, then these may be based on actual cost adjusted to bills of quantities pricing levels.

In Henry Boot v Alstom the relevant bill rates were in fact unrealistically high, and Henry Boot accepted that it had made an error in its calculation. Henry Boot nevertheless insisted that it was entitled to be paid for the extra work on the basis of those artificially high bill rates. The arbitrator disagreed with Henry Boot, applying fair rates and prices instead. Henry Boot appealed against the arbitrator's award to the Technology and Construction Court (TCC), on a matter of law. The judges found in favour of Henry Boot, stating that bill rates, even though they contain an error, should be applied to additional work where the provisions of the contract so provide.

The Institution of Civil Engineers (ICE) Conditions of Contract Measurement Version (7th edition) adopts a similar procedure, by referring to the 'price' of ordered variations in clause 52. This price is to be based, where appropriate, on the rates set out in the bills of quantities. Clause 53 makes provision for the contractor to claim a higher rate or price or any additional payment pursuant to any clause of these conditions other than sub-clauses 3 and 4 of clause 52 (valuing variations) or clause 56(2) (increase or decrease in rate due to actual quantities being greater or less then the measured quantities). The ICE 7th edition therefore restricts the reimbursement of reasonable additional costs to situations where these costs cannot be 'valued' under the contract.

Arguably clause 4.23 of JCT 2011 allows the reimbursement of reasonable costs associated with general disruption caused by a number of variations that would not have been incurred by reason of any one of the variations in isolation. The ICE 7th edition does not provide for such reimbursement other than by adjustment of the bill rates for the individual variations.

The difference of approach between valuing variations and valuing claims for loss and expense is highlighted in the case of Weldon Plant Ltd v The Commission for New Towns [2000].

See also WW Gear Construction Ltd v McGee Group Ltd [2010] which adds further support for the decision in Merton v Leach.