Are Claim Preparation Costs Recoverable?
A common question that we often get is whether the costs of preparing claims (whether incurred though employee time or by way of specialist consultants) are recoverable.
My opinion is that such costs are usually not recoverable, but some attendees to training course that I present through our training partner, Claims Class, have put forward arguments that they are claimable. And in fact, several attendees advised that they had been successful in recovering such costs. Given this division of opinion, I decided to do some investigation and report my findings, so here is the result of my research. As is often the case in such matters – it depends…
My ex boss Roger Knowles, in his book 200 Contractual Problems and their Solutions makes reference to several legal cases and summarises the situation as follows:
‘It appears unlikely that, in the absence of express terms in the contract which give an entitlement to payment, the cost of producing documents in support of a claim which is a requirement of the conditions of contract … will be recovered. In providing this information, the contractor or subcontractor is merely complying with the requirements of the contract’.
‘Where the conditions of contract require the architect or contract administrator, having received notice and details from the contractor or subcontractor, to ascertain loss and expense, any failure to ascertain will constitute a breach of contract by the employer. The costs of further preparation work regarding a claim, if it results from the breach, may well be recoverable’.
‘If it can be shown that, prior to service of an arbitration notice, the preparation of the claim is in contemplation of such arbitration, the arbitrator may, in exercising a discretion with regard to the award of costs, include the cost of preparing the claim. The [UK] courts have now accepted as part of a claim for breach of contract the costs of managerial time spent in investigating the breaches and maintaining records.’
The Society of Construction Law’s Delay and Disruption Protocol (2017 Edition) agrees with Roger and under item 3.1, provides the following advice:
‘Most construction contracts provide that the Contractor may only recover the cost, loss and/or expense it has actually incurred and that this be demonstrated or proved by documentary evidence. The Contractor should not be entitled to addition costs for the preparation of that information, unless it can show that it has been put to additional cost as a result of unreasonable actions or inactions of the CA [contract administrator]in dealing with the Contractor’s claim.’
In summary then, the costs of preparing the initial claim are not recoverable, but if the architect, contract administrator or engineer fails to respond to the claim or makes an unjust award under the terms of contract, this would constitute a breach of contract and costs incurred in pursuing the claim from this point onwards would be recoverable.
A word of practical advice though – the breach argument would not be sustainable in a case where the contractor submitted an inadequately expressed claim in the first instance and the architect, contract administrator or engineer rejected it on the grounds of the claimant having failed to prove his case. The preparation of additional particulars in such circumstances would be regarded as the contractor merely fulfilling his contractual obligations.
This blog was written by the ICCP’s Executive Officer and Fellow, Andy Hewitt. If you would like to learn more about claims, check out our training partner, Claims Class or, if you’d like to join the ICCP community, check out our Membership page.
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