Employer claims for costs saved in breach of contract

A recent TCC decision has accepted in principle the ability of an Employer to claim for the costs saved by a Contractor in connection with defective work, irrespective of the need for remedial work. This appears to be the first time the TCC has considered the making of such claims in a construction context. The decision is likely to be of interest to Employers who discover widespread shortcomings in a Contractor’s performance without a clear need for remedial work.

Amey LG Limited v Cumbria County Council

We recently reported on Cumbria’s claim against Amey for defective road repairs based on statistical evidence and extrapolation (see our earlier Law-Now here). Part of Cumbria’s claim related to work which it alleged was not carried out by Amey, including alleged failures to apply certain seals to road patch repairs and less than required patching thickness. It appears that Cumbria was unable to show that these alleged failings would, as a practical matter, necessitate any remedial work. It therefore claimed by reference to the costs saved by Amey in allegedly failing to carry out these works and/or the proportion of the contract price paid to Amey for work which had allegedly not been provided.

Decision

The vast majority of Cumbria’s claim in this regard failed due to the extrapolation issue discussed in our earlier Law-Now. The sample evidence relied on by Cumbria was not shown to be representative of the works as a whole. Nevertheless, the court’s judgment contains important commentary as to the permissibility of claims for costs saved of the type made by Cumbria.

Cumbria had initially advanced its claim based on restitutionary principles but later sought to claim on the basis of diminution in value arising from the alleged breaches of contract. It was said that the diminution in value arising from the alleged breaches could be evidenced either by the cost saved by Amey or the proportion of the contract price which related to the allegedly unperformed or partially performed work.

The court was prepared to accept both formulations of Cumbria’s claim. With regard to diminution in value, the court found that such a claim was permissible “even in circumstances where the employer cannot point to any specific consequential loss suffered by him as a result of the non-performance in terms, for example, of there being a reasonable need to undertake remedial works.” In appropriate circumstances, “the process of ascertaining the diminution in value may involve using either the cost of providing the works or the contract price as the best evidence of that value”.

The court also held that there was no good reason why restitutionary damages should not be awarded in cases where it is submitted that there is a delivery of some but not the entire contract works, which were in substance claims for “short delivery”.

Conclusion and implications

This appears to be the first time the TCC has considered a claim for the costs saved by a contractor in connection with defective work without the need for remedial works. The court’s judgment draws on developments in non-construction cases in recent years and it remains to be seen how the law will develop future cases, both in the construction and non-construction spheres.

For the time being, the present case would appear to give encouragement to Employers to make claims for defective work even where a defect has no practical impact on the performance of the work in question. Although the facts of the present case related to work alleged to have not been carried out or only partially performed, the court’s reasoning might also be argued to extend to cases where cheaper or non-proprietary materials are used contrary to those specified but where proof of any meaningful difference in performance is difficult to prove.

References:

Amey LG Limited v Cumbria County Council [2016] EWCH 2856 (TCC)