Clawing Back Those Management Costs

In most cases, you’ll want to recoup some or all of the costs of resolving the dispute. Melissa Horrocks outlines three golden rules for recovering entitlement.

Contractors are frequently confronted with situations in which delays occur on site as a result of an action or inaction on the part of the employer or the employer’s consultants, such as late information or denial of access to the site (which amounts to a breach of contract). These costs could include the cost of business disruption caused by management being diverted from their normal duties to deal with the claim.

Recent case law has addressed the issue of management costs, and the rulings in those cases can be applied to construction. In essence, there are three golden rules to follow that will greatly increase your chances of recovering costs.

1. Present the evidence

It is critical that you have sufficient evidence to back up your claim. The decision in Aerospace Publishing Ltd & Anor v Thames Water Utilities Ltd [2007] determined that in order for a claim to succeed, it must be demonstrated that the breach of contract caused the staff to be diverted from their normal activities, which significantly disrupted the business. Based on such evidence, the court can conclude that the disruption to employees would be at least equal to the cost of employing them during that time.

You must also maintain detailed records (via timesheets or diaries) that include the following information:

  • Who were the employees who were diverted, and why were they chosen?
  • What impact did diverting those employees have on the business?
  • What activities did they engage in?
  • How much time was spent on those activities?

Remember to gather witness testimony and explain why you are claiming management costs. In Bridge UK.com Ltd v Abbey Pynford Plc [2007], a witness statement was produced to demonstrate the impact of the breach, and evidence was presented to demonstrate the significant increase in the company’s turnover in the years following remedial work. The judge agreed that a retrospective evaluation is valid. However, due to the uncertainty of its accuracy, your calculation of time spent on a breach may not be approved by the judge and may be discounted.

2. Make use of justifiable staff rates

The standard rates in your claim should not be exaggerated. Azzurri Communications Ltd v International Telecommunications Equipment Ltd (t/a SOS Communications) [2013] EWPCC 17 highlighted the consequences of raising staff rates. Azzurri had to hire outside help to complete the tasks that Azzurri’s staff would have completed if the breach had not occurred. Azzurri claimed £88,807.84 in diversion costs, but was only awarded £24,550.91 because its own evidence showed that the cost of the external resource was only half of their charge-out rate.

In the Bridge UK.com case, the courts approved a method for calculating an hourly rate that involved using the business’s audited accounts, the manager’s annual income, and then dividing it by the number of hours worked in a year.

3. Do not include the cost of claim preparation.

The time spent preparing witness statements or any other claim preparation must not be included in a claim for management costs because this is part of the litigation costs. Claim preparation costs should be treated as a distinct claim that can be easily identified.

The freelance worker who inspected the damage and prepared a witness statement was included in the claim for management costs in the Aerospace case. The court ruled that Aerospace must prove that the rest of the freelance workers’ time was not spent on claim preparation. They were unable to demonstrate this to the court, so this portion of the claim was dismissed.

Last Updated on December 28, 2021

Indra-Gupta

Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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