16. “HEADINGS AND MARGINAL NOTES”. A drafting error in the previous edition is corrected.
17. CLAUSE REFERENCES. This definition permits the omission of the “hereof” which appears in the previous edition after each cross-reference to a clause number.
This tiny nod in the direction of modern and clear drafting appears to have exhausted the draftsman of this edition.
The definition applies only to clause references “herein”, i.e. in the conditions (general or special), not in the specification or other documents.
18. “ ‘COST’…DEEMED TO INCLUDE OVERHEAD COSTS WHETHER ON OR OFF… THE SITE”. Note that this definition only applies to references to cost in the conditions of contract (general or special), not in other contract documents.
Under cl. 13 (3) the contractor is entitled to cost incurred due to instructions and similarly restricted to cost in cls. 12 (3), 14 (6) and 31 (2). m′
Extra work or delay may cause real additional overhead costs to the contractor, for example where he has to engage extra supervisors on or off the site to deal with the additional work, or to employ for a longer period supervisors specially engaged for the particular works. Such cost is clearly recoverable under this definition. The contractor’s fixed overheads, for example rent of head office premises, are much more difficult.
In claiming for breach of contract where the contractor is not limited to recovering costs (p. 427), contractors traditionally include loss of overhead return. The example may be taken of a delay of six months for which the employer is responsible, in a contract that would have been performed in a year but for the delay. The contractor will show the annual amount towards payment of these fixed overheads that would have been earned by his resources engaged on the contract, and will seek to recover half that amount by way of damages on the grounds that had his resources been freed from the site and not retained there unproductively for a further six months they would have earned on another contract that further contribution to overheads (see further p. 370 on this formula). Such a claim is not for cost incurred because of the delay, in the sense that the contractor would have had to pay these overhead costs even if the delay had not happened, but is for loss of the opportunity to earn money out of which to pay those costs.
It might well be argued, therefore, that if a contractor is detained on the works unproductively for an extra six months because of an instruction of the engineer, the proportion of his head office costs equal to the proportion of his total turnover represented by the works does not constitute cost, in the sense of expenditure, incurred by reason of the instruction. That is, except in so far as he can show that during the period of the delay supervisors (with attendant office space, secretarial staff, etc.) in fact spent extra time dealing with the works by reason of the instruction.
It is possible that a wider interpretation will be adopted by the courts, in keeping with what seems to be the intention; that in so far as the contractor incurs extra costs on a site he is deemed to incur with them the appropriate proportion of the off-site expenses which, so to speak, “go with” the resources on site. A more forthcoming definition would have avoided this ambiguity. n
There will be other, unavoidable, anomalies in restricting the contractor to recovery of cost without loss of profits. For example, in an identical situation the costs recoverable by a contractor who hires plant will be greater than the costs recoverable by a contractor doing the work with his own plant (for which he will normally be entitled only to depreciation and other costs actually incurred while the plant is standing). A contractor doing the works on borrowed money will incur and presumably be entitled to recover interest charges; a contractor financing the works from his own resources may have no such head of recovery, since his equivalent loss will be the profit he would have made using elsewhere the money tied up in the works. Judicious arrangements when a job is undertaken, or even when some occurrence takes place for which the employer is bound to pay the contractor his cost, may increase the amount recoverable. n′
A distinction must be drawn between those clauses in these conditions which entitle the contractor only to cost incurred (e.g. cls. 13 (3) and 14 (6)), and the clauses which say that particular work shall be done “at the expense (cost) of the Employer” (cls. 20 (2), 36 (2)) or that “cost…shall be borne by the Employer” (cls. 17, 36 (3), 38 (2), 50). It is suggested that under both of the latter formulae the employer is bound to make reasonable payment to the contractor for the work, i.e. normally cost plus a reasonable percentage for profit. It might be argued that a subtle distinction is intended between the two formulae on the grounds that the definition of “cost” in this sub-clause means that under the last four clauses, overheads but not profit are payable; but there is no statement in any of those cases that it is the cost “incurred by the contractor” that is being referred to, and it is suggested that in context the word cost is used in the sense that the price for the operations is to be borne by the employer. For disruption claims see p. 370.