Introduction
Contractors often tend to argue that where work portion is omitted from their existing Contract they lose an opportunity of earning a profit element which was built into the value of work omitted. This being the case they claim from the Employer the loss they allege to have been suffered. It is not clear cut whether the Contractor is entitled to the loss of profit or not.
ICE 6th and 7th Edition deals with the evaluation of variations in the following Clauses :
52.1 6th Edition
52.3 7th Edition
Valued at rates and prices set out in the Contract
52.2 6th Edition
52.4 7th Edition
Engineer has power to change rates in the Contract which are
rendered inapplicable due to the varied work.
The Dubai Municipality Conditions of Contract deals with the matter in a similar manner to Clause 52.1
These Clauses in the Conditions of Contract is found to be not helpful in answering the question as to whether the loss of profit should be paid for work omitted.
In the case of Mitsui Construction Co. Ltd. Vs The Attorney General of Hong Kong (1986),the court seemed to give the Engineer wide scope when exercising his powers under the equivalent of Clause 52.2 of the ICE Conditions of Contract to adjust Contract rates. A reasonable argument may be that such adjustment should be made to take account of the loss of profit.
Contracts with JCT 1998 applies, Clause 13 deals with variations and stipulates that they will be valued at bill rates where work is of similar character, executed under similar conditions and doesn’t significantly change the quantities. If there is a significant change of quantities then the Contractor may become entitled under Clause 13.5.1.2 to a variation to the rate to include a fair allowance for the change of quantities.
There is provision in Clause 13.5.5 for adjusting the Contract rates, where the conditions have been substantially changed due to a variation. The wording significantly differs from Clause 52.2 of the ICE Conditions and therefore not helpful to Contractors wishing to argue that Contract rates should be amended to take account of the loss of profit for the work omitted.
In the case of Wraight Ltd. Vs P H and T Holdings (1968),a Contractor’s Contract was wrongly determined with the work part completed. The determination Clause provided for the Contractor to be paid
“ Any direct loss and or damage caused to the Contractor by the determination.”
It was held by the court that this wording included the loss of profit on the uncompleted work.
JTC 63 under Clause 11(6) allows the Contractor to recover direct loss and or expense arising from a variation. Following the Wraight Ltd. Vs P H and T Holdings (1968) case this would include loss of gross profit. Therefore if Contractor could show that as a result of an omission profit had been lost, the loss could be recovered if the Contract is worded similar to that of JTC 63.
JTC 1998 however does not include a Clause equivalent to Clause 11(6) of JTC 63
Clause 26 of JTC 1998 deals with loss and expenses resulting from a variation but only applies where the regular progress of the works has been materially affected.
In the case of Bonnells Electrical Contractors Vs London Underground (1995), it was held that where a call out Contract was wrongly determined the injured party was entitled to loss of profit on work which would have been carried out during a period of notice which ought to have been given.
SUMMARY
The answer to this question is not clear but depends mostly upon the wording of the Contract.
Normally standard Conditions of Contract in the normal use do provide provision for variation including omissions. Therefore no scope for claiming damages for breach.
Contracts which are worded like that of JCT 63 Clause 11(6) do allow the Contractor to claim loss and expenses where the work is varied. In Wraight Ltd. Vs P H and T Holdings (1968),it was held that the wording “direct loss and or damage” included gross profit. Therefore it would seem that Clause 11(6) of JCT 63 would also allow for the loss of profit.
ICE 6th and 7th Edition and Dubai Municipality Condition of Contract –Clause 52 for example do provide for adjusting Contract rates rendered inappropriate due to the varied work. There is a possibility for Contractors to argue that in adjusting rates allowance should be made for the loss of profit for omitted work.
Under JCT 1998- Clause 13.5.1.2 the Contractor would have an entitlement to a fair valuation where significant omission occurred. This may said should cater for the loss of profit from work omitted. It is quite common however where substantial work is omitted for Engineers and Quantity Surveyors to make allowance for loss of profit.
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