Ascertainment of loss and expense

Interest or finance charges may be reimbursable if:

1. the contract provides so;
2. they are claimed as direct loss and or expense and form part of the loss incurred;
3. they are claimed as damages for breach of contract and form part of the loss incurred;
4. the Late Payment of Commercial Debts (Interest) Act 1998 applies; or
5. interest is awarded by the court.

Neither the conditions contained in the Joint Contracts Tribunal (JCT) Standard Building Contract With Quantities 2011 (JCT 2011) nor the Institution of Civil Engineers (ICE) Conditions of Contract Measurement Version (7th edition) make specific provision for the recovery of financing charges as part of the loss incurred, although both sets of conditions provide for the payment of interest in the event of late payment. In this context, finance charges are payable in respect of the amounts certified, whereas interest is payable if the amount certified is not paid in full by the final date for payment.

Items (3), (4) and (5) above are extra-contractual and therefore outside the scope of the responsibilities of the claim assessor. However, the claim assessor must be aware of potential recoverability when advising the client. The award of interest by a court or arbitrator is at the discretion of the court or arbitrator, but is often awarded as simple interest at a rate of 8% from the date the sum was due until the date of judgment.

In F. G. Minter v Welsh Health Technical Services Organisation [1980], the court was willing to accept that finance charges could form part of the loss incurred by the contractor. This was achieved by interpreting JCT 63 (which contained similar provisions to JCT 80, JCT 98, JCT 2005 and JCT 2011) as including a contractual right to interest as direct loss and expense. It is felt that the ICE conditions should be interpreted in a similar way when determining cost.

As with other items of loss, expense and additional cost, only the contractor's reasonable costs are reimbursable.

In order to recover compound interest as part of the loss, it is not necessary for the contractor to issue repeated notices for the interest costs being incurred (see Rees and Kirby v Swansea City Council [1985]). The contractor is entitled to reasonable financing charges from the occurrence of the loss until the date of payment on a compound basis. In Rees and Kirby it was held that quarterly rests were appropriate. If the contractor delays reimbursement by failing to provide details of its loss within a reasonable time, then this should be taken into account when calculating the financing charges due.

Increased costs caused by delay

The contractor may claim that, as a consequence of delay, it has suffered price rises that would otherwise have been avoided.

In principle, such claims are valid, provided that the additional costs can be proven, any costs have been mitigated (for example by pre-ordering with the consent of the architect or engineer) and the costs do not duplicate that which has already been allowed for under fluctuations clauses.