A Lamb Associates Limited

Cost Effective Construction Claims

Is a new era of cost effective construction claims on the horizon? A recent case suggests that the days of expensive, extremely detailed claims may be over. Does every claim need every point evidenced in granular detail, or could sampling save costs? Associate Director Nigel Jackson explores…

The Background

The judgement in the recent case Building Design Partnership Ltd v Standard Life Assurance Ltd [2021] EWCA Civ 1793 (BDP) contained thought provoking remarks about the use of a representative sample to evidence a larger claim. Standard Life was able to plead its case for recovery of sums against 3,604 variations, by investigating only 167 of them.

Several blog posts have discussed the court proceedings. But how might this judgement affect the approach to compiling a claim for alternative dispute resolution (ADR)?

Compiling a claim is not without cost. When considering a claim, the aggrieved party must consider whether the claim is worth the time, effort and money needed, compared to the sum it is likely to recover. Where the claim is complex, the up-front investment needed to prove every element in granular detail may be off-putting for the claimant.

Sampling may offer a way to reduce the costs of compiling claims if investigations can be limited in scope. But is this allowed?

The Law

Using sampling in adjudication is viable. In Bouygues E&S Contracting UK Ltd v Vital Energy Utilities Ltd [2014] CSOH 115, Bouygues sought to quash an adjudicator’s decision on several grounds. One of these was that the adjudicator used his own experience to declare that:

“In my experience of similar disputes in court, the court may resolve the issues by consideration of a sample of invoices/claims etc. I consider that such an approach is all the more acceptable in the context of adjudication”.

Bouygues objected, saying it should have had an opportunity to comment on the adjudicator’s reliance on his own ‘experience’ (that sampling was acceptable). However, he was not adding new evidence (in which hypothetical case the parties should be afforded the opportunity to comment).  He was merely drawing on his experience. Bouygues action failed.

So sampling can be acceptable to an adjudicator, and the courts will enforce a decision based on sampling. What does BDP add to the equation?

The Current Case

First of all, there is some guidance on what type of claim is suitable for sampling contained in the judgement. It must be shown that the sample is “on the balance of probabilities, to be properly representative of the pool of allegations as a whole”. If elements of a claim are unrelated, sampling would not be suitable. So what types of claims might be suitable?

If the claimant is a contractor, they may have priced hundreds or even thousands of variations. Where the certifier has consistently undervalued them, then there might be a common theme – for instance, has the certifier refused to allow risk allowances in the quotes that should be permitted under the contract? Or has the certifier taken an approach to valuing loss and expense that is disputed by the contractor? By selecting a sample of variations, the undervaluation could be extrapolated to the other variations.

What if the claimant is the client? Maybe there is a particular type of defect that has become apparent across a contract. An example of this can be found in Associated British Ports v Hydro Soil Services NV [2006] EWHC 1187 (TCC) where testing of a sample of piles was enough to decide an entire quay wall was unfit for purpose.

If the initial claim is evidenced by a sample, the ideal outcome would be the other party agreeing to negotiate a settlement. The party bringing the claim is in a stronger negotiating position, without the effort of proving the whole claim. This point holds even if the parties require mediation to assist the negotiation.

If negotiation is unsuccessful, then the sampling work is not wasted effort. The claimant can refer the issue to adjudication and use its sample to evidence its claim. In justifying the use of a sample, the referring party could lean on the judgment in BDP to persuade the adjudicator of its merits, for instance the words of Coulson LJ:

“The days of the court requiring parties in detailed commercial and construction cases to plead out everything to the nth degree are over. It is not sensible; it is not cost-effective; it is not proportionate.”

This could have major implications for how claims are prepared, evidenced and argued in future.

Comment: Does this mean cost effective construction claims?

Sampling might be particularly useful in adjudication. Firstly, adjudication is not the final word on any matter, so a party that felt the outcome was not realistic could litigate the issue and investigate every aspect separately (although they should pay up first, as per Bouygues the adjudicator’s decision would likely be enforced first. Pay now, argue later!). Second, the main purpose of adjudication is to assist cashflow, and as such the speed of the decision (within 28 days usually) is the most important feature. Sampling is a helpful way to achieve this speed, with a bonus that it would be more cost effective for both parties.

Adjudication was intended to be a speedy and cost-effective way to achieve quick outcomes. It is often referred to as ‘rough justice’. As the industry has professionalised and expert witness submissions have become more commonplace, claims have become more complex.

This is obviously required in some cases. But in many cases, the evidence and level of detail expected is entirely disproportionate to the sums at stake.

At ALA we believe in commercial pragmatism. If millions of pounds are in dispute and the case is technical and complex, the appropriate level of detail should be provided. We regularly do this work through our in-house Quantum and Planning Expert Witness service. However, in many cases this is simply not required. As described above, there are many cases where the issues at the heart of the dispute are relatively straightforward. It is hoped that this pragmatic approach to representative sampling reduces the costs involved in a number of claims. In short, we hope that sampling may help to see the return of cost effective construction claims.

ALA has acted in over 100 adjudications over the past 25 years. We also have extensive experience in negotiations and mediations.

Contact Us if you would be interested in discussing any issues you may be having on your project. We would be happy to provide a free initial consultation.