Driver Trett Digest Issue 21 03.2021 - Flipbook - Page 40
DIGEST | ISSUE 21
when the plant is not able to work, the contractor incurs
reduced costs because of the reduced wear and tear and cost
of operation. It also reflects that a large part of the ‘actual’
depreciation (as opposed to any ‘fiscal’ depreciation rules)
of items of major plant and equipment directly owned by
the contractor arise from the consumption of hours of the
‘working life’ of the plant and equipment.
Challenges frequently arise with respect to the quantification
of claims for such costs, when the Plant has already reached
the end its anticipated life-span such that the cost of
depreciation no longer exists. In such situations, contractors
often try claiming the hire value of such Plant to eliminate
the limitations of claiming depreciation costs in the case of
older Idling Owned-Plant.
This article explores:
1.
2.
3.
Claims under Contract;
Claims for Damages; and
How to advance hire value claims for plant in event of
delay.
CLAIMS UNDER CONTRACT
HOW TO CLAIM
COMPENSATION FOR IDLING
OWNED PLANT
DEPRECIATION
COSTS OR
RENTAL VALUE?
Jungguk Lee
Operations Manager
Driver Trett
40
In order for a delay cost claim to be compensated, the
costs should be justified, reasonable and provable. Idling
power-driven mechanical plant1 (“Plant”) is one of the
categories of cost that most often appears in construction
delay claims.
The costs of idling plant owned by a contractor (“Idling
Owned-Plant”) are generally assessed based on the costs of
ownership. As such, most claims for Idling Owned-Plant are
likely to be limited to interest, maintenance and depreciation
associated with that plant. Depreciation is often the largest
portion of such costs and is an annual accounting cost, which
is calculated based on purchase value, anticipated life-span
and salvage/re-sale value of the Plant.
The concept of separate standby rates in a schedule of plant
rates is normally based on the premise that during periods
The compensation to which a contractor
is entitled, arising from delays for which
the Employer is responsible, may be
prescribed by the terms of the underlying
contract.
For example, FIDIC contains provisions that allow a contractor
to be compensated for additional costs incurred due to delay
or disruption and the word “Cost” is defined2 as being “…all
expenditure reasonably incurred (or to be incurred) by the
Contractor, whether on- or off-site, including overhead and
similar charges, but does not include profit…”.
Julian Bailey states3 that such entitlement does not usually
extend to permit a contractor to recover loss or damage
(“Damages”) that do not represent costs directly incurred, for
example loss of profit opportunity (“Lost Profit”).
The specific contractual provisions regarding Idling OwnedPlant are illustrated in the leading case of Alfred McAlpine
Homes4. It was held that a contractor’s entitlement under the
JCT standard form5 of contract to recover direct loss and/or
expense (“Direct Loss/Expense”) for delay did not entitle it
to recover a notional hire value in respect of Idling OwnedPlant.
The contractual compensation under a contract is generally
the actual cost incurred by the contractor for Idling OwnedPlant, where that cost is often measured as the depreciation
in the value of the plant. This is because construction
contracts such as the JCT standard form often have clauses
excluding liability for consequential loss.
CLAIMS FOR DAMAGES
Where a contractor suffers damages as a consequence of an
Employer’s breach of contract, and the recovery of costs is
not addressed in the contract, entitlement to damages might
nevertheless exist.
Loss of profit seldom qualifies as an additional cost item.
However, take for example, a situation where a particular item
of Plant is kept on a particular site longer than anticipated
and this results in the need to hire an equivalent item of plant
on another contract to which the Idling Plant was originally
planned to be moved to.
For Owned Idling-Plant Costs, it could be argued that delays
due to an Employer’s breach, which has the effect of the
Owned-Plant being required on site longer than originally
planned, may result in loss of profit or loss of opportunity
costs. However, without clear evidence of lost profit or
opportunity, any claim for Idling Owned-Plant is likely to be
limited to interest, maintenance and depreciation. This is
because lost profit often depends on whether there is strong
demand for hire in the construction market for the particular
plant at that time.
HOW TO ADVANCE HIRE VALUE CLAIMS FOR A
PLANT IN THE EVENT OF DELAY
In the case of Sunley6, it was held that the costs recoverable in
the event of a prolongation claim being successfully pursued
were limited to the depreciation costs of the Idling OwnedPlant. There was no clear evidence as to disturbance of the
contract or loss of profit. It was held that in the absence of
evidence of loss of profit, the damage claimable was limited
to depreciation, interest and maintenance.
In the Converse7 case however, the contractor was deemed
entitled to recover the fair and reasonable hire value of a
dredger on the basis of evidence, which was considered
sufficient to establish that, but for the delay, the Idling OwnedPlant would actually have been used on other work and that
such other work was available and awaiting the use of this
Plant. Similarly, in the Cotton8 case , the plaintiff successfully
proved that it had other work available in connection with
which the claimed Plant would have been used but-for the
delay.
In the Bahen Wright9 case, the claimed hire value of the
certain Plant was denied on the grounds that the Plaintiff
had submitted inadequate evidence of availability of other
use, and no material evidence of the availability of a hire
market for the Plant in question.
ADJUSTMENT
In Laburnum10, it was held that the fair hire value of Idling
Owned-Plant was a proper basis for Claims for Damages but
also that the hire value should be multiplied by a percentage
(50 per cent) to account for the lack of wear and tear on the
Idling Owned-Plant.
41