Claim Limited to Cost of Rectification, Not Potential Loss

Not all building and construction projects run to plan and when they don't the contracts relating to them are subject to variations.

Variations produce price changes, which all too frequently produce arguments, as a recent case illustrated.

The dispute concerned an offshore wind farm being built for energy giant E.ON. A contractor was engaged to sink piles for the wind turbines. However, the barge the contractor was using suffered from numerous mechanical problems, which led to E.ON deciding to supply its own barge.

The argument arose over what the correct deduction from the original contract price should be. E.ON argued that the contract would have overrun considerably had it not supplied its own barge, and valued its claim at more than £34 million as a result.

The contractor disputed the basis of claim, arguing that the appropriate deduction was the cost of supplying the barge as stated in the original contract – £12.9 million.

The judge accepted that, had the contractor been left to complete the works with its own barge, a significant delay would have resulted and E.ON would have been able to claim damages for the resulting loss. However, by using its own barge, that loss had been avoided.

Because of E.ON's decision to take some of the contracted work back 'in house', the amount recoverable was the cost of that work as set out in the contract. E.ON's claim was limited to the loss it had actually suffered.

An interesting aside to this is that when a loss is anticipated in circumstances such as this, there is a duty on the person who suffers the loss to minimise that loss. Had E.ON not taken the steps it did, it is arguable that the loss for which it could claim would have been limited as a result.

If you are involved in a long-term contract which is going wrong, we can advise you regarding the appropriate steps to take.