Construction Project Management –

Loss and Expense

Tim Jones
MBA, FRICS
Web Class Outcomes

By the end of the Web Class you will be able to:

➢ Understand the Principles of Loss & Expense
➢ Be aware of Contract Provisions
➢ Understand Contractor’s Notices
➢ Demonstrate awareness of Heads of Claim
➢ Learn Top Tips for Loss & Expense
➢ Have knowledge of calculating Head Office Overheads
➢ Understand Procedures for Demonstrating Loss & Expense
Agenda

Introduction
Loss & Expense Procedures and Causes
Parties obligations relating to the subject

Architect / Contract Administrator’s obligations

Content of Contractor’s Notices

Methods and calculating Head Office overheads
Good Record Keeping
Introduction to me

Tim Jones FRICS, MBA

➢ Chartered Building Surveyor

➢ 30+ years experience – UK Construction and Property Industry
➢ Director of Atherstone St. James Ltd
➢ RICS APC Chairman and Assessor for (BS, PM, QS pathways)
➢ RICS Project Management and Contracts Trainer
➢ RICS APC Trainer
➢ RICS Accredited Civil Commercial Mediator
➢ RICS Registered Valuer
Introduction to you

Please answer in the chat box below -

➢ Are you a Client, a contractor or ….

Loss & Expense

What do YOU think it is?

Answer in the chat box below
Loss & Expense

Why is it paid?
➢ It is paid by the client in order to put the Contractor’s
cash position back to where it would have been if the
Breach of Contract did not arise.

➢ It reimburses financial losses and expenses incurred by

the Contractor.

➢ Breach of Contract is typically an Extension of Time

Loss & Expense

Extension of Time

➢ Relevant Events:
➢ Neutral Relevant events

➢ Non-neutral relevant events

Loss & Expense

Relevant events:

➢ Exceptionally Adverse Weather

➢ Statutory Undertakers Works
➢ Strikes
➢ Civil Commotion/Terrorism etc
➢ Strikes
➢ Legislation change after the base date ( e.g. building
regulations)
➢ Relevant Matters
➢ Force Majeure
Loss & Expense

Relevant matters:

➢ Variations or Client Changes

➢ Opening up works
➢ Deferment of possession of site
➢ Inaccurate approximate quantities
➢ Client impeding the works
➢ Client not paying the contractor
Loss & Expense

How is it calculated?

fin d out for certain

Loss & Expense

Procedures

• Contractor makes application for Loss & Expense as soon as

it becomes apparent
1
• Architect instructs Quantity Surveyor to ascertain Loss &
Expense
• Quantity Surveyor typically seeks further information from
2 contractor

• Contractor provides further information

• Quantity Surveyor ascertains Loss & Expense
3
Loss & Expense – Top Tip 

A Good Contractor’s Notice

Reference
The
to
Relevant
documents
Matter
and records

Supporting
The Cause
information
and Effect
(if available)
Loss & Expense – Top Tip 

When can loss and expense be ascertained?

201 6
january february march april
s m t w t f s s m t w t f s s m t w t f s s m t w t f s
1 2 1 2 3 4 5 6 1 2 3 4 5 1 2
3 4 5 6 7 8 9 7 8 9 10 11 12 13 6 7 8 9 10 11 12 3 4 5 6 7 8 9
10 11 12 13 14 15 16 14 15 16 17 18 19 20 13 14 15 16 17 18 19 10 11 12 13 14 15 16
17 18 19 20 21 22 23 21 22 23 24 25 26 27 20 21 22 23 24 25 26 17 18 19 20 21 22 23
24 25 26 27 28 29 30 28 29 27 28 29 30 31 24 25 26 27 28 29 30
31

may june july august

s m t w t f s s m t w t f s s m t w t f s s m t w t f s
1 2 3 4 5 6 7 1 2 3 4 1 2 1 2 3 4 5 6
8 9 10 11 12 13 14 5 6 7 8 9 10 11 3 4 5 6 7 8 9 7 8 9 10 11 12 13
15 16 17 18 19 20 21 12 13 14 15 16 17 18 10 11 12 13 14 15 16 14 15 16 17 18 19 20
22 23 24 25 26 27 28 19 20 21 22 23 24 25 17 18 19 20 21 22 23 21 22 23 24 25 26 27
29 30 31 26 27 28 29 30 24 25 26 27 28 29 30 28 29 30 31
31

september october november december

s m t w t f s s m t w t f s s m t w t f s s m t w t f s
1 2 3 1 1 2 3 4 5 1 2 3
4 5 6 7 8 9 10 2 3 4 5 6 7 8 6 7 8 9 10 11 12 4 5 6 7 8 9 10
11 12 13 14 15 16 17 9 10 11 12 13 14 15 13 14 15 16 17 18 19 11 12 13 14 15 16 17
18 19 20 21 22 23 24 16 17 18 19 20 21 22 20 21 22 23 24 25 26 18 19 20 21 22 23 24
25 26 27 28 29 30 23 24 25 26 27 28 29 27 28 29 30 25 26 27 28 29 30 31
30 31
Loss & Expense

Why is it paid?
Typically Heads of Claim include:
➢ Acceleration Procedures

➢ Site Preliminaries Prolongation

➢ Site Preliminaries “Thickening”

➢ Head Office Overheads

➢ Increased Costs

➢ Disruption Costs

➢ Finance Charges

➢ Subcontractor Claims
Loss & Expense

Acceleration Procedures
➢ Client fault
➢ Contractor fault
➢ Critical path analysis
Loss & Expense
Critical path analysis
Loss & Expense

Preliminaries are:
People and facilities required to carry out the works
➢ Site Manager

➢ Site Huts

➢ Tower Crane

➢ Temporary Electrics

➢ Welfare Facilities

➢ Power and Water for the Works

➢ Site Telephones etc.

Loss & Expense

Site Preliminaries Prolongation

Relates to the extended period of time that Prelims are
kept on site for the delay period

For example:
Delay of 6 weeks =
➢ Site Manager x 6 weeks

➢ Site Huts x 6 weeks

➢ Welfare Labourer x 6 weeks

Etc, etc…
Loss & Expense

Site Preliminaries – ‘Thickening’

This relates to extra over Prelims required on site as a result of a
breach of contract by the Client

For example :-
► Architect issues 100 variations for finishes in 2 week period
► Major changes
► Therefore additional Site Manager brought in to manage that
process and those changes

This additional Site Manager is termed as ‘Prelims

Thickening’
Loss & Expense – Top Tip 

Cause & Effect Schedules are ideal for demonstrating Loss & Expense
Loss & Expense

Head office overheads

Loss & Expense

Head Office Overheads – Actual Recovery

➢ For this you need:
Loss & Expense

Head Office Overheads

► Formula Approach ► Hudson

► Emden ► Eichleay
Loss & Expense

Head Office Overheads

Emden Formula

h x c x pd = Claim Amount
100 cp

► h = Head office percentage

► c = Contract Sum

► cp = Contract Period

► pd = Period of Delay
Loss & Expense

Head Office Overheads

Hudson Formula

HO/Profit% x Contract Sum x Period of Delay ( weeks )

Contract Period ( weeks )
Loss & Expense

Head Office Overheads

Eichleay Formula

Rarely used in UK , it comes from an American legal case

involving the Eichleay Corporation
Loss & Expense

Head Office Overheads

In order to succeed, a Contractor has to prove

there was other work available which, but for
the delay, he would have secured that work.

Top Tip
Contractor can do this by producing invitations
to tender and letters declining the tenders, as
there was not enough resources available.
Loss & Expense

Increased Costs

The Contractor may be entitled to increased costs due to

delays if:-

► He would have purchased an item in 2015 for £10 and then due
to delays he purchased it in 2016 for £11.

► Thus an increased cost of £1.

► This is increased costs due to inflation

► Invoices and Price lists can be used to demonstrate this

Loss & Expense

Disruption Costs
► Out of sequence working
► Return visits

► Trade congestion

► Disruption very difficult to prove

► Keep good records and allocation sheets

► Take photographs

► Mark up drawings showing dates of work done

► Typically recorded on daywork sheets

Loss & Expense

Finance Charges

Delays typically cause Contractor to :-

► Have cash flow disrupted

► Get paid later for his works

► Receive retention money later

► Prove cause and effect and how long Contractor is

stood out of money

► Bank charges,
► loss of bank interest etc.
How can the subcontractor
prove cause and effect?

Please answer in the chat box below

Loss & Expense

Subcontractor Claims

► Ensure subcontractor proves cause and effect

► Seek copies of time sheets, wages slips, etc.

► When submitting Subcontract Claim to PQS, consider

any attendances Contractor has provided …such as
hoisting, task lighting, etc….

► Contractor only entitled to actual loss and expense

incurred
Loss & Expense

Records
Loss & Expense

Demonstration

Costs Narrative Relevant

Events
Questions and
answers

Start typing your

questions!
Key review points

Today we have discussed and experienced:

➢ Defining Loss & Expense
➢ Contract Provisions & Relevant Matters
➢ Cause & Effect & Schedules
➢ Notices & their content
➢ Heads of Claim and formulae
➢ Loss & Expense Records
➢ Methods of demonstrating Loss & Expense
Part 6
Further reading

RICS Black Book

➢ Conflict of interest ✓ Acceleration
➢ Contract Administration ✓ Appropriate Contract selection
➢ NRM 1, 2 & 3
✓ Ascertaining Loss & Expense
✓ Construction Insurance
FIDIC
➢ http://fidic.org/
✓ Construction security documents etc
✓ Conflict Avoidance & Dispute etc
IChem E ✓ Damages for delay to completion
➢ http://www.icheme.org/foc ✓ Defects & Rectifications
✓ Defining Completion on Construction Works
✓ Developing a Construction Procurement Strategy
JCT
➢ http://www.jctltd.co.uk/
✓ Employers Agent
➢ Understanding JCT Standard Building Contracts, David ✓ Extensions of Time
Chappell, Routledge ✓ Final Account Procedures
➢ Sarah Lupton Guides (JCT) ✓ Interim Valuations & payment
✓ Management of Risk
NEC3 ✓ Mediation
➢ NEC3: A Users Guide, Jon Broome, ICE ✓ Retention
➢ https://www.neccontract.com/About-NEC ✓ Tendering Strategies
➢ http://www.stevencevans.com/ ✓ Termination of Contract etc
Procurement
➢ Code of Practice for Project Management for Construction
and Development, (5th Edition, CIOB, Wiley-Blackwell)
 Questions and
answers

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attending!

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