| Date | 10 June 1998 |
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| Judgment | City Axis Ltd -v- Daniel P Jackson, ORB 11 February 1998 |
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| The Issue | Payment of off-site overheads and profit in the event of delay. |
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| Implication |
Except where direct evidence can be produced of off-site resources expended as a consequence of a period of delay, in normal circumstances a contractor will be unable to recover off-site overheads and profit without direct evidence of lost business opportunity. |
printThe law in relation to the payment of a contractor's off-site overheads and profit in the event of delay to a project has been closely examined from almost every angle in recent years. The effect of these cases has been to gradually curtail the manner in which a contractor may make such a claim, and this was further confirmed by the most recent decision given on 11 February 1998 between City Axis Ltd -v- Daniel P Jackson. There are eight judgments which appear to be the most commonly cited whenever this question comes before the courts. In the Canadian case of Ellis-Don -v- The Parking Authority of Toronto (1978) the contractor succeeded in recovering a weekly sum in respect of the costs of overheads and loss of profit, calculated by reference to a tender figure of 3.8%. Two assumptions had to be satisfied before such an approach would be acceptable. Firstly, that the contractor did not habitually underestimate his costs when pricing so that the percentage could be shown to be a realistic one, and secondly, that there was thereafter no change in the market so that work of at least the same level of profitability would have been available to the contractor at the end of the contract period. Such an approach was to be contrasted with the decision in Tate and Lyle -v- The GLC (1983) where the contractor claimed 2% on prime costs for managerial time. Here the Judge accepted that such a head of claim was admissible but refused to award any sum as he considered that the quantum was approached by way of pure speculation. In Whittle Builders Co Ltd -v- Chester Le-Street District Council (1985) the contractor was successful in its claim for off-site overheads and profit on the basis of an average percentage earned by the contractor on his turnover as shown in its accounts. In J F Finnegan -v- Sheffield County Council (1988) this approach was also followed. In that judgment it was said "it is generally accepted that, on principle, a contractor who has been 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." In Babcock Energy -v- Lodge Sturtevant (1994) Babcock was in a strong position in that it had kept very good records of the additional hours spent by head office staff in connection with the delayed matters. Babcock had also produced evidence to show that its order book was full, that work had been farmed out and that agency staff had been employed. This was good enough for the Official referee. Turning the argument around in favour of the contractor he said: "The plaintiffs might have provided an alternative quantification by reference to the additional cost to them of employing others, but I do not consider that they are obliged to do so if they can satisfactorily demonstrate the cost to them of time unnecessarily spent and therefore lost. It is for the defendants to show that the losses prima facie incurred are not the correct measure of damage and this (the defendants) failed to do". The high water mark of such contractor's claims came in the case of Alfred McAlpine -v- Property and Land Contractors (1995). Again the formula approach to the assessment of quantum was accepted and it was confirmed that the reimbursement of unabsorbed head office overheads would be permissible where under recovery was occasioned by delay and the contractor had no means of reducing these costs as a result of the events giving rise to the delay. The difficulty with this case was that Property and Land was an unusual contractor in that it generally worked on one project at a time. This meant that it was in a special position. Its dedicated approach to its client meant that it was not in a position to replace turnover during a stoppage or delay in its current contract activity. In St Modwen Developments -v- Bowmer and Kirkland (1996) this distinction was further highlighted. Again the formula approach to the calculation of head office overheads was approved but it was clarified that this would only be acceptable where the contractor was able to prove a constraint upon its resources and lost opportunity. Critically the Judge commented that this latter qualification would be more difficult for the contractor to overcome in times of recession. In Amec Building Ltd -v- Cadmus Investment Company (1996) this thinking was developed further. The Court upheld an arbitrator's decision that the delays in construction caused on the project were not such as would deter a building contractor of the size and standing of Amec from tendering for work elsewhere. Thus the general state of the market and the size and standing of the contractor would be factors militating against the award of damages for unabsorbed off-site overheads and profit. This was reflected in the eleventh edition of Hudson where the author 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." In the most recent case, City Axis were unable to give direct evidence of work that it might have turned away or of specific projects which it had been unable to bid for successfully, as a consequence of having resources tied up on the disputed project. The evidence which it gave was described as "statistical and inconclusive" and thus the claim was rejected by the court.
CJ-9821
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