Our monthly legal advice slot tackles the employer that refused to respond to a loss and expense claim, the right of a client to use a contractor’s material after the contract has been rescinded and being reimbursed for the costs of making a claim
Forcing a party to negotiate

An architect issued a 19-week extension of time on a 30-week contract that was completed one and a half years ago. The delay was caused by difficulties in obtaining access to the works, lack of information and variations, which were all “relevant events” under IFC98. The contractor’s QS submitted a formal loss and expense claim for about £100,000 one year ago. Despite repeated efforts to agree the claim, the employer’s QS simply says he feels no costs are attributable. He will not respond to the contractor’s heads of claim nor come up with his own assessment. The contractor’s QS is prepared to mediate on the claim but the employer will not enter into negotiations. Is adjudication a useful way to force the employer to respond to the contractor’s figures?

Under section 108 of the Construction Act, any party to a construction contract has the right to refer a dispute arising under the contract to adjudication at any time (clause 9A of the IFC98 also provides for disputes between the parties to be referred to adjudication).

Given the stance that the employer has taken to the contractor’s loss and expense claim, then the referral of this matter by the contractor to adjudication is probably the best way forward.

The contractor should write to the employer enclosing the formal loss and expense claim for £100,000, together with all supporting evidence, and state that if it is not paid within a particular period then a dispute will exist between the parties and the matter will go to adjudication. It appears that a dispute already exists but to save a possible jurisdictional challenge from the employer, it is worth setting it out so that the employer and the adjudicator are in no doubt.

The employer will then be forced to consider the contractor’s claim, or if it chooses not to and the adjudicator finds that the loss and expense sums can be legitimately backed up, then the employer may face an adjudicator’s award of up to £100,000.

By the way, if the matter were to go to litigation, the court would probably be very critical of the employer for refusing to participate in mediation.

Life after termination

When a contract is rescinded by the employer, does the employer have the right to take up and use the contractor’s material and plant on site? Can the employer use materials stored off site where a letter of indemnity has not been provided nor the materials marked as property of the employer? If the employer engages the same subcontractor to complete the specialist subcontract work, can the employer hold the original main contractor responsible for any defects in the subcontractor’s work?

Well, it depends what the contract says. However, we will deal with each of your questions in turn, based on the JCT Private With Quantities 1998 Edition form of contract.

If the employer determines the contract because of the default or insolvency of the contractor, it can use the contractor’s plant, tools, equipment and site materials to complete the works. If the employer determines the contract in circumstances where the contractor is not in default, it can only use the contractor’s materials once it has paid for them and they have become the property of the employer.

The employer may use any materials that are off-site if they have paid the contractor or the supplier for them. If the employer has not paid for the materials, it is likely that they are still owned by the supplier and the employer has no rights to them.

The original contractor will only be liable for the work of its subcontractors up until the time the contract is determined. If the employer

later engages the same subcontractors direct to complete the work, the contractor will not be liable for the work done by those


The cost of preparing a claim

It is generally accepted that a contractor is not entitled to reimbursement for any costs it has incurred in preparing a loss and expense claim unless it can show that it has been put to additional cost as a result of the unreasonable actions or inactions of the employer. The rationale behind this is that the contractor is only doing what it has agreed to in its contract: to provide information to demonstrate that it has suffered actual loss as a result of an employer risk event.

There is little case law, but the case of Michael A Johnston vs WH Brown Construction (Dundee) (2000) does apply such reasoning in the context of a defects claim. Here, the employer sought to recover the cost of preparing a schedule of defects served on a contractor. The Scottish court held that the contract provided its own remedy for a contractor’s breach, namely to serve a schedule of defects and to require the contractor to rectify them at no cost to the employer. Where the contract provided its own method by which breaches can be remedied, it did not follow that the cost of operating that mechanism could be recovered. The court stated: “What is being sought here is not true consequential loss but is simply the cost of operating the mechanism specifically contemplated by [the contact].”