What Are Loss and Expense Claims?
Loss and expense claims are formal requests for financial compensation submitted by contractors or subcontractors in the construction industry. These claims are typically initiated when they have incurred financial losses or incurred additional expenses as a result of delays, disruptions, or unexpected issues during the course of a construction project. The requesting party seeks reimbursement for the funds they have lost or the extra costs they have had to bear due to these unforeseen circumstances.
These claims are typically made under the Joint Contracts Tribunal (JCT) contract, which is a standard form of contract used in the construction industry.
Examples of Loss and Expense Claims in Construction Disputes
To better understand how loss and expense claims work in practice, let’s look at some illustrative examples:
Example 1: Delayed Payments
A contractor is working on a construction project and has completed the work as per the agreed schedule. However, the client has not made the agreed payments on time, causing a delay in the contractor’s cash flow. As a result, the contractor incurs additional expenses, such as interest on loans and late payment fees. The contractor can make a loss and expense claim to recover these additional expenses.
Example 2: Design Changes
A subcontractor is working on a construction project and has completed the work as per the original design. However, the client requests changes to the design, which results in additional work and expenses for the subcontractor. The subcontractor can make a loss and expense claim to recover these additional expenses.
How Do Loss and Expense Claims Work?
Loss and expense claims are typically made when there is a delay or disruption on a construction project that is caused by the client, the architect, or other contractors. This can include things like late payments, design changes, or delays in providing necessary information.
When a contractor or subcontractor experiences a loss or incurs additional expenses due to these delays or disruptions, they can make a claim for compensation. This claim is typically made under the JCT contract, which outlines the process for making and resolving loss and expense claims.
Common Types of Loss and Expense Claims
Loss and expense claims in construction projects can arise from various situations where contractors or subcontractors suffer financial losses or incur additional expenses. Understanding the common types of loss and expense claims is essential for effective management and resolution. Here are some of the common types:
- Delayed Payments: One of the most prevalent types of loss and expense claims is due to delayed payments from clients or project owners. When contractors do not receive payments on time as per the agreed terms, it can lead to cash flow issues, increased financing costs, and additional administrative burdens. Contractors may incur losses in the form of interest on loans, late payment fees, and other financial penalties.
- Changes in Design or Scope: Changes in the design or scope of a construction project can also result in loss and expense claims. If clients request modifications after work has commenced, subcontractors may have to allocate additional resources, labour, and materials to accommodate the changes. These alterations can lead to delays, increased expenses, and disruptions to the project timeline, prompting subcontractors to seek compensation for the extra costs incurred.
- Unexpected Site Conditions: Unforeseen site conditions can impact construction projects and trigger loss and expense claims. Contractors may encounter hidden obstacles, such as unstable soil, underground utilities, or environmental hazards, which were not evident during the initial site assessment. Dealing with unexpected conditions often requires modifications to the construction plan, utilization of specialized equipment, and extended project timelines, all of which can contribute to financial losses for contractors.
- Delays Caused by Others: Delays caused by clients, architects, or other contractors on the project can lead to loss and expense claims. If critical information is not provided in a timely manner, design approvals are delayed, or coordination issues arise among project stakeholders, contractors and subcontractors may face disruptions that impact their work schedule and budget. In such cases, contractors may seek compensation for the additional costs incurred as a result of these delays.
- Weather-Related Delays: Adverse weather conditions, such as heavy rain, snowstorms, or extreme temperatures, can hinder progress on construction projects and give rise to loss and expense claims. Weather-related delays can result in work stoppages, schedule extensions, and increased costs for site protection and remediation. Contractors may submit claims to recover the expenses associated with weather-related disruptions that were beyond their control.
Understanding these common types of loss and expense claims can help contractors and subcontractors anticipate potential issues, proactively manage risks, and effectively navigate the claims process to seek fair compensation for their financial losses and additional expenses incurred during construction projects.
Why Are Loss and Expense Claims Important?
Loss and expense claims are important for both contractors and clients. For contractors, these claims provide a way to recover any losses or additional expenses they may have incurred due to delays or disruptions on a project. This can help them to maintain their profitability and cash flow, which is crucial for the success of their business.
For clients, understanding and properly managing loss and expense claims is important for maintaining good relationships with contractors and ensuring that projects are completed on time and within budget. By addressing and resolving these claims in a timely and fair manner, clients can avoid disputes and maintain a positive working relationship with their contractors.
How to Make a Loss and Expense Claim
If you are a contractor or subcontractor who has experienced a loss or incurred additional expenses due to delays or disruptions on a construction project, you may be eligible to make a loss and expense claim. Here are the steps you should follow to make a claim:
Step 1: Review Your Contract
The first step in making a loss and expense claim is to review your contract. This will help you understand the process for making a claim and the requirements you need to meet in order to be eligible for compensation.
Step 2: Gather Evidence
In order to make a successful loss and expense claim, you will need to provide evidence to support your claim. This can include things like invoices, receipts, and other documentation that shows the additional expenses you have incurred or the losses you have suffered.
Step 3: Notify the Client
Once you have gathered all the necessary evidence, you will need to notify the client of your intention to make a loss and expense claim. This should be done in writing in the form of a Letter before Claim and should include a detailed explanation of the claim, as well as any supporting evidence.
Step 4: Submit Your Claim
After notifying the opponent and if the claim is not resolved, you will need to submit your claim. This should be done in accordance with the process outlined in your contract. In most cases, you will need to submit your claim at Court. It is crucial to ensure that all the necessary documentation and evidence are included in your claim to support your case effectively.
Step 5: Negotiate and Resolve the Claim
If a resolution cannot be reached, the claim may need to be escalated to a dispute resolution process, such as mediation or arbitration.
Tips for Managing Loss and Expense Claims
Managing loss and expense claims can be a complex and time-consuming process. Our expert construction lawyers provide some tips below to help you effectively manage these claims and avoid disputes:
Keep Detailed Records
One of the most important things you can do to manage loss and expense claims is to keep detailed records. This includes things like invoices, receipts, and other documentation that supports your claim. By keeping detailed records, you can easily provide evidence to support your claim and avoid disputes.
Communicate Effectively
Effective communication is key to managing loss and expense claims. This includes communicating with the client and their representatives, as well as with other contractors and subcontractors on the project. By keeping everyone informed and involved in the process, you can avoid misunderstandings and disputes.
Expert Loss and Expense Claim Solicitors
Loss and expense claims are an important aspect of construction projects, providing a way for contractors and subcontractors to recover losses and additional expenses caused by delays or disruptions.
Our expert construction dispute lawyers can help resolve loss and expense claims. We can:
- Provide legal expertise and guidance on your loss and expense compensation claim.
- Conduct a due diligence exercise on your opponent (including an insolvency and claims tracker)
- Assess the merits of your loss and expense claim and review contract terms and evidence.
- Assist in gathering and organising necessary documentation to support your claim.
- Prepare a comprehensive and persuasive letter before claim to seek to resolve your loss and expense claim.
- Represent you in negotiations with the opposing party.
- Escalate the claim to alternative dispute resolution or litigation processes if needed.
- Implement strategies to avoid disputes and resolve issues proactively.
- Provide legal representation and advocacy in formal disputes or legal proceedings.
Please do not hesitate to call us for a Free Consultation on 0207 459 4037 to discuss your case with our expert construction lawyers today.
