adding subcontractor costs to the claim - recognized?
In the Open Standard
Randal LindleyMember for 19 years 2 months
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Hi everybody,
Does somebody know perhaps if this is recognized- can a general contractor include in its claim the escalated prices now being charged by the subcontractor?
The Owner (actually the govt in a b.o.t. project) has come out during negotiations and said sorry, but all of the risk of higher wages for your subcontractors were your risk, and that that is the norm for b.o.t. projects.
I’ve just been brought on board to help with the claim, but I am pretty new to this field and still confused- I can prove various substantial delays by the Govt including delays in granting the required building permits, which greatly delayed the actual start of construction in some parts of the Site. These delays took the contractor out of its schedule and were the primary cause for the subcontractors now demanding more money to work on other sections (ie, they realize that things are taking longer and have become more complicated, thereby driving up their costs, so now must charge the contractor more per mile than what the contractor originally estimated vis a vis the govt).
In this case I thought I could say the subcontractors escalated costs could be added to my own to form Direct Costs. But these have been rejected out of hand. Aren’t they valid when the owner is the cause for the price escalation by its delays? And do b.o.t. projects generally mean that the contractor assumes all risk for it subcontractors?
Thanks very much for reading this, I really appreciate it. I am learning that understanding the building of construciton claims is an entire art in itself- very interesting but confusing too. If anyone know of some good case law in this area I’d really appreciate it- have to do some major searching for support.
Thanks again for your time,
Randal
Does somebody know perhaps if this is recognized- can a general contractor include in its claim the escalated prices now being charged by the subcontractor?
The Owner (actually the govt in a b.o.t. project) has come out during negotiations and said sorry, but all of the risk of higher wages for your subcontractors were your risk, and that that is the norm for b.o.t. projects.
I’ve just been brought on board to help with the claim, but I am pretty new to this field and still confused- I can prove various substantial delays by the Govt including delays in granting the required building permits, which greatly delayed the actual start of construction in some parts of the Site. These delays took the contractor out of its schedule and were the primary cause for the subcontractors now demanding more money to work on other sections (ie, they realize that things are taking longer and have become more complicated, thereby driving up their costs, so now must charge the contractor more per mile than what the contractor originally estimated vis a vis the govt).
In this case I thought I could say the subcontractors escalated costs could be added to my own to form Direct Costs. But these have been rejected out of hand. Aren’t they valid when the owner is the cause for the price escalation by its delays? And do b.o.t. projects generally mean that the contractor assumes all risk for it subcontractors?
Thanks very much for reading this, I really appreciate it. I am learning that understanding the building of construciton claims is an entire art in itself- very interesting but confusing too. If anyone know of some good case law in this area I’d really appreciate it- have to do some major searching for support.
Thanks again for your time,
Randal
3 replies
Oldest first- 0Andrew Flowerdew ·Randal,
BoT, PFI, EPC, etc contracts are normally bespoke forms of contracts, sometimes many volumes thick.
No way of being able to answer your question but very generally these types of contract normally put alot more risk onto the contractor. Compared to standard form contracts they are very onerous but in return the contractor should have a significantly higher profit margin and contingencies built in. The contractor takes on alot more risk (sometimes just about all) but at a price.
So can’t say yes or no to your question but it wouldn’t surprise me if it is a contractor risk. Reading is the key to this one!
- 0Randal Lindley ·Hi Andrew,
Thanks for answering.
For days now I’ve been pouring over the volumes that comprise the contracts and have seen a lot of language referring to recouping Direct Costs, the definition of which doesn’t specifically include subcontractors, but doesn’t explicitly exclude them either. According to the owner, subcontractor costs aren’t ever direct costs.
My argument goes something like this right now, unless I can get something better going: Even though the contractor may have adopted certain risks, this was risk that assumed the playing ground was level- that both parties were performing their obligations (and then, should something unforeseen have occurred, the contractor would have to absorb the costs). But where one of the parties, ie, the owner, is single-handedly responsible for that "risk" being realized, it cannot then hide behind a "no-risk" argument.
Basically the idea that all the risk is on the contractor has created an atmosphere that the owner needn’t try so hard to prevent delays because there won’t be any consequences beyond the formal "direct costs."
I guess it borders on a bad faith argument.
I appreciate your insight
- 0Andrew Flowerdew ·Randal,
Knowing what a minefield such contracts can be - having most likely been put together by many lawyers negotiating with one another a long period of time, it is really impossible to say.
Unfortunately there’s no assumption that the playing ground is level, it is as negotiated which can sometimes be very unlevel. But yes both parties must perform their obligations in a reasonable manner so as to not hinder the other party from complying with their obligations. (prevention principle) In the USA I believe this would include a duty to act in good faith. (don’t have it in the UK) But what is good faith in the circumstances would have to be taken in the context of what has been agreed each party is to do and who is liable for what in the contract.
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