Loss and expense, in the context of a construction contract, refers to the additional cost properly incurred by the contractor as a direct consequence of an event for which the employer bears contractual or legal responsibility. The phrase originates in the standard form contracts of the United Kingdom but the underlying concept — that a contractor should be reimbursed for additional cost caused by employer-side events — is recognised in some form under almost every standard form and bespoke contract used in the UAE and the wider GCC.
The starting point for any loss and expense claim is the contract itself. FIDIC contracts, for example, contain a number of clauses entitling the contractor to recover 'Cost' or 'Cost plus reasonable profit' in defined circumstances: variations, suspension, late access to site, employer-caused delay and so on. Each of those entitlement clauses is subject to its own conditions and procedural requirements, and a claim that fails to comply with those requirements may be barred regardless of merit.
A critical distinction must be drawn between loss and expense recoverable under the contract and damages recoverable for breach of contract. Loss and expense is a contractual remedy — it depends on the contract giving rise to the entitlement, and it is assessed in accordance with the contract's machinery. Damages, by contrast, are a remedy at law for breach of contract, assessed by reference to the principles of causation, remoteness and mitigation. The two remedies sometimes overlap in factual scope but they are conceptually distinct and are pleaded and proved differently.
The contractor must establish three elements to recover loss and expense: the occurrence of a qualifying event, the incurrence of additional cost, and the causal link between the two. The first element is generally a question of fact and contract construction. The second is a question of accounting and substantiation. The third is the most demanding: the contractor must prove not merely that additional cost was incurred and that a qualifying event occurred, but that the additional cost was caused by that event and would not have been incurred in its absence.
The record-keeping requirements for a successful loss and expense claim are substantial. Contemporaneous records of resources deployed, productivity achieved, costs incurred and time expended are essential to the substantiation of any claim. Without those records, the claim is reduced to an exercise in reconstruction, and reconstructed claims rarely succeed in arbitration. The contractor who has maintained proper records from the outset is in a far stronger position than the contractor who attempts to assemble the claim retrospectively.
The principal heads of loss and expense include site preliminaries (the cost of running the site for the additional period), head office overhead (the contribution to the contractor's central cost base that the prolonged works should have generated), loss of productivity (the additional cost of carrying out the works in disrupted conditions), finance charges (the cost of funding the additional expenditure pending payment) and, in some cases, loss of profit. Each head requires a different methodology and a different evidential basis.
Our claims experts at Construction Expert Witness specialise in the ascertainment, presentation and defence of loss and expense claims on construction and engineering projects across the UAE and GCC. We assist contractors, employers and their legal advisers in evaluating the merits of claims, in preparing and substantiating claim submissions, and in providing independent expert evidence in arbitration and litigation.