| Date | 15 January 1997 |
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| Judgment | Amec Building Ltd -v- Cadmus Investment Company Ltd, 5 June 1996 |
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| The Issue | Recovery of fixed overheads and profit on delayed projects. |
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| Implication |
Larger size contractors may find it more difficult to establish entitlement to unrecovered overheads and profit during a period of delay. |
printWhether a contractor is entitled to recover head office overheads during a period of delay to a contract may depend upon the size of the company. It may be recalled that in Alfred McAlpine Ltd -v- Property and Land Contractors the contractors were awarded head office overheads and profits during a period of delay upon a formula basis. They were considered to be a 'one client' contractor seeing through each project before moving onto the next and, consequently, providing it could be shown that alternative work would have been available, they were entitled to recover head office overheads during a period of delay. The proposition that such a remedy might not be available to a larger company was examined in Amec Building Ltd -v- Cadmus Investment Company Ltd decided on 5 June 1996. Amec were appealing part of an arbitrator's award on the basis that the arbitrator was wrong in law in holding that Amec's claim had failed by reason of their failure to keep records, and rejecting their claim for head office overheads according to a formula. A number of different cases were examined. First of all Tate and Lyle -v- GLC was considered. The plaintiffs in that case had kept no record of the time expended and in those circumstances the plaintiff's loss could not be quantified either in cash or as a percentage of the damages awarded. Mr Justice Forbes had said: "I have no doubt that the expenditure of managerial time in remedying an actionable wrong done to a trading concern can properly form the subject matter under the head of special damage. In a case such as this it would be wholly unrealistic to assume that no such additional managerial time was in fact expended. I would also accept that it must be extremely difficult to quantify but modern office arrangements permit of the recording of the time spent by managerial staff on particular projects. While I am satisfied that this head of damage can properly be claimed, I am not prepared to advance into an area of pure speculation when it comes to quantum. I feel bound to hold that the plaintiffs have failed to prove that any sum was due under this head." A second case considered was Finnegan -v- Sheffield County Council where His Honour Sir William Stabb QC had to decide a similar point. The issue was whether the allowance for overheads and profit was to be calculated using the Hudson formula, that is overhead and profit percentage based on a fair annual average multiplied by the contract sum and the period of delay in weeks, divided by the contract period. In that judgment it was said: "It is generally accepted that, on principle, a contractor who has delayed in completing a contract due to the default of his employer may properly have a claim for head office or off-site overheads during the period of delay on the basis that the work force, but for the delay, might have had the opportunity of being employed on another contract, which would have had the effect of funding the overheads during the overrun period." Quantity surveyors often delight in pointing out that Sir William Stabb QC perhaps did not use the Hudson formula but instead applied the Emden formula, but in truth Hudson in its eleventh edition now makes it perfectly clear that the plaintiff is expected to produce evidence in support of the particular percentage applied, and thus in reality there is very little difference between the two. Also examined was Babcock Energy -v- Lodge Sturtevant in which His Honour Judge Humphrey Lloyd followed the decision in Tate and Lyle. Here Babcock had kept accurate records of their resources and were allowed to recover as a head of damage the time and cost incurred by certain members of its staff in dealing with the problems encountered on the project. Having heard all of this evidence the arbitrator had concluded that the delays in construction caused on this project were not such as would deter a building contractor of the size and standing of Amec from tendering for work elsewhere, and he concluded that in his view the onset of the recession in the industry better reflected the tendering opportunities open to them. However having heard all the evidence and considered all the matters referred to him, he then rejected the claim for loss of profit and awarded overheads on a restricted application where he was satisfied with the evidence. Reviewing this, the court held that there was nothing wrong in the arbitrator's general approach and for that reason this particular head of appeal was dismissed. This decision perhaps reflects the thinking of Ian Duncan-Wallace in Hudson's eleventh edition where, reflecting upon the conditions necessary to establish a claim for profit and fixed overheads, he comments: "Paradoxically, it may be the small local builder in constant demand who in more recent times may be in a better position to establish this type of loss, although his fixed overheads may of course be much smaller.
CJ-9702
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