PRACTICE

NOTES
FOR
QUANTITY
SURVEYORS

Contractual Claims
Preface Contractual Claims

Preface Contractual Claims

A Working Committee with representatives of the Hong Kong Institute of Surveyors, 1. General
the Association of Consultant Quantity Surveyors and the Hong Kong Construction
Association was set up in October 2010 to establish a set of Practice Notes for the benefit
of Quantity Surveying professionals in Hong Kong. These practice notes are merely an outline of the more common
approach to assess claims to assist the Quantity Surveyor’s line of
The Practice Notes are not intended to promulgate a standard of practice, but rather to
produce some basic guidelines for the following core practices : thought in tackling a claim. The facts of a claim vary widely and its
details must be studied and reviewed on a case by case basis.
1. Tendering
2. Cost Control and Financial Statements
3. Valuation for Interim Payment Certificates A clear distinction should be drawn between “direct loss and/or
4. Valuation of Variations expense” or “costs” (“loss/expense”) recoverable in accordance with
5. Handling of Contractual Claims
the provisions of a contract and “damages” recoverable at common
6. Settlement of Final Account
law. Whilst the principle of claims assessment for both categories of
As different client organisations will have their own procedures and requirements, the claims overlap to some extent, these practice notes refer to claims
Practice Notes, which are prepared mainly for private sector projects using the HKIA/HKIS
Standard Forms of Building Contract, should be adapted as appropriate.
recoverable under the contract provisions. Common law claims which
involve legal arguments shall be referred to the Client’s solicitor for
The members of the Working Committee are: - handling.
Representing the Hong Kong Institute of Surveyors
Mr. Raymond KONG These practice notes generally refer to the wording in the HKIA/HKIS
Mr. SO Chee Sing Standard Form of Contract. However they can also be regarded as
Ms. Sandy TANG
Ms. Amelia FOK general principles applicable to most common forms of contract.
Reference should be made to the specific clauses of the contract being
Representing the Association of Consultant Quantity Surveyors
used in order to approach a claim correctly.
Mr. Kenneth POON
Mr. CHAN Choi Hing
Mr. Amen HOR Forms of contract in common use in Hong Kong include some
provisions for an extension of the time for completion of the
Representing the Hong Kong Construction Association
Mr. FUNG Chi Yiu Works and reimbursing the Contractor for Loss/Expense, which the
Mr. Patrick LO Contractor would not otherwise have incurred and which are the result
Mr. YU Lap Chu
of the relevant events specified in the conditions of contract.
The Working Committee expresses its gratitude to the following HKIS members in the
Architectural Services Department and the Housing Authority for sharing their experience Such relevant events usually arise because:-
in and knowledge of Quantity Surveying practice in the public sector for the improvement
of the document.
(a) something unexpected has been revealed during the course of
Professional Quantity Surveyor from the Architectural Services Department construction;
Mr. Alvin CHAN

Professional Quantity Surveyor from the Housing Authority

Mr. James FUNG

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Contractual Claims Contractual Claims

(b) the right action has not been taken by the right person at the right 2. Extension of Time
time;
Claims for extensions to the contract time are considered and decided
(c) the Architect, or the Employer, has varied the works, or by the Architect. However, it is not uncommon for the Architect to
request the Quantity Surveyor to advise on the contractual validity of
(d) discrepancie s have been discovered in or between the contract the claims.
documents.
Unless the contract provides otherwise, the following principles
A fundamental principle of any claim for an extension of time should be observed :
and Loss/Expense by a Contractor is that the following should be
established: (a) The Contractor should "upon it becoming apparent that the
progress of the Works is delayed" give written notice of the
(a) Identify the event leading to the claim; cause of delay to the Architect. Unless otherwise stated to the
contrary, failure to give notice within a reasonable time should
(b) Understand the facts of the event and verify them with the not invalidate a claim. However, untimely notification would have
Architect/Engineer; implications on the Architect's reasoning when considering a
claim (e.g. when the Architect considers that had a notice been
(c) What would have happened had the relevant event not occurred, given, he would have acted otherwise to avoid the delay).
i.e. whether the event has had an effect on the work progress and
is a critical delay event; (b) The event delayed must be "critical" (i.e. the activity in question
must lie on the project’s critical path). Whether an event in issue
(d) Whether the Contractor has complied with the provisions is critical is to be decided by the Architect. Delay to non-critical
concerning notices and submission of particulars and whether events would not entitle the Contractor to an extension of time.
such provisions are conditions precedent to the Contractor’s
entitlement to claims; (c) Whether an event caused a delay or not should be decided
by reference to the actual progress on Site, not to the original
(e) Whether the Contractor has proved the quantum of the extension programme at commencement of work e.g. if a Contractor was
of time and Loss/Expense. already late on the structural works (due to his own fault), a "late"
instruction to change the finishes detail might not be considered
It is important that claims should be notified to the Client as soon as late if works on such trade had not yet been commenced.
the matters arise such that the Client has the option to take necessary
actions to minimise any time and cost effects. It should be noted that the issue of concurrent delay is always
in debate and the case laws on concurrent delay vary from time
to time. Legal advice on complicated concurrent delay issues
should be obtained.

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Contractual Claims Contractual Claims

(b) the right action has not been taken by the right person at the right 2. Extension of Time
time;
Claims for extensions to the contract time are considered and decided
(c) the Architect, or the Employer, has varied the works, or by the Architect. However, it is not uncommon for the Architect to
request the Quantity Surveyor to advise on the contractual validity of
(d) discrepancie s have been discovered in or between the contract the claims.
documents.
Unless the contract provides otherwise, the following principles
A fundamental principle of any claim for an extension of time should be observed :
and Loss/Expense by a Contractor is that the following should be
established: (a) The Contractor should "upon it becoming apparent that the
progress of the Works is delayed" give written notice of the
(a) Identify the event leading to the claim; cause of delay to the Architect. Unless otherwise stated to the
contrary, failure to give notice within a reasonable time should
(b) Understand the facts of the event and verify them with the not invalidate a claim. However, untimely notification would have
Architect/Engineer; implications on the Architect's reasoning when considering a
claim (e.g. when the Architect considers that had a notice been
(c) What would have happened had the relevant event not occurred, given, he would have acted otherwise to avoid the delay).
i.e. whether the event has had an effect on the work progress and
is a critical delay event; (b) The event delayed must be "critical" (i.e. the activity in question
must lie on the project’s critical path). Whether an event in issue
(d) Whether the Contractor has complied with the provisions is critical is to be decided by the Architect. Delay to non-critical
concerning notices and submission of particulars and whether events would not entitle the Contractor to an extension of time.
such provisions are conditions precedent to the Contractor’s
entitlement to claims; (c) Whether an event caused a delay or not should be decided
by reference to the actual progress on Site, not to the original
(e) Whether the Contractor has proved the quantum of the extension programme at commencement of work e.g. if a Contractor was
of time and Loss/Expense. already late on the structural works (due to his own fault), a "late"
instruction to change the finishes detail might not be considered
It is important that claims should be notified to the Client as soon as late if works on such trade had not yet been commenced.
the matters arise such that the Client has the option to take necessary
actions to minimise any time and cost effects. It should be noted that the issue of concurrent delay is always
in debate and the case laws on concurrent delay vary from time
to time. Legal advice on complicated concurrent delay issues
should be obtained.

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Contractual Claims Contractual Claims

(d) Whether or not a Contractor is entitled to an extension of time (a) Heads of Claim
is to be decided by the Architect. The Quantity Surveyor should
only provide comments on contractual matters for consideration Claims for loss/expense normally fall under the following
if requested by the Architect to do so. headings:

(i) Additional expenses that can be easily identified and

3. Loss/Expense Claims substantiated.

There are two basic claims situations – “prolongation” and

(ii) Increased Preliminaries due to prolongation of the
“disruption”.
Contract period.

A typical example of a disruption claim would be where a delay has

(iii) Disruption claims.
been caused to a project activity and which may or may not affect
the overall contract completion date depending on its criticality.
(iv) Non-recoverable fluctuations.
Where a delay event does not fall on the critical path, it should
not attract an extension of time award. Whilst the loss/expense
(v) Head office overheads and profit.
associated with such disruption is allowable under most contract
types, it is usually difficult for a Contractor to isolate and prove
(vi) Finance charges
said costs. Such claims should, therefore, be treated with caution
by the Quantity Surveyor.
(b) Additional Expenses

Prolongation claims are generally thought of as the costs

All such expenses should be checked separately to ensure that
associated with an extension of time as granted by the Architect
they do not over-lap expenses claimed under other headings e.g.
or contract administrator. However, taking clause 27 of the
extra plant hire time that might be covered under for a prolonged
HKIS Conditions (2005 Edition) as an example, there are events
contract period.
(commonly known as neutral events) for which the Contractor may
be entitled to an extension of time, but not prolongation costs,
An addition in the range of 15% of the net cost as overheads
such as the following:
and profit is widely adopted as the market norm for sake of
convenience. That assumption, however, may be subject to
• force majeure;
challenge if it has not been adequately substantiated.
• inclement weather;
• the Excepted Risks

As a general rule the Employer will only be liable for loss/expense

incurred by the Contractor which is caused by acts for which the
Employer or his agents are responsible. Also, the recoverable costs
incurred must be “direct” (ie. not consequential).

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Contractual Claims Contractual Claims

(d) Whether or not a Contractor is entitled to an extension of time (a) Heads of Claim
is to be decided by the Architect. The Quantity Surveyor should
only provide comments on contractual matters for consideration Claims for loss/expense normally fall under the following
if requested by the Architect to do so. headings:

(i) Additional expenses that can be easily identified and

3. Loss/Expense Claims substantiated.

There are two basic claims situations – “prolongation” and

(ii) Increased Preliminaries due to prolongation of the
“disruption”.
Contract period.

A typical example of a disruption claim would be where a delay has

(iii) Disruption claims.
been caused to a project activity and which may or may not affect
the overall contract completion date depending on its criticality.
(iv) Non-recoverable fluctuations.
Where a delay event does not fall on the critical path, it should
not attract an extension of time award. Whilst the loss/expense
(v) Head office overheads and profit.
associated with such disruption is allowable under most contract
types, it is usually difficult for a Contractor to isolate and prove
(vi) Finance charges
said costs. Such claims should, therefore, be treated with caution
by the Quantity Surveyor.
(b) Additional Expenses

Prolongation claims are generally thought of as the costs

All such expenses should be checked separately to ensure that
associated with an extension of time as granted by the Architect
they do not over-lap expenses claimed under other headings e.g.
or contract administrator. However, taking clause 27 of the
extra plant hire time that might be covered under for a prolonged
HKIS Conditions (2005 Edition) as an example, there are events
contract period.
(commonly known as neutral events) for which the Contractor may
be entitled to an extension of time, but not prolongation costs,
An addition in the range of 15% of the net cost as overheads
such as the following:
and profit is widely adopted as the market norm for sake of
convenience. That assumption, however, may be subject to
• force majeure;
challenge if it has not been adequately substantiated.
• inclement weather;
• the Excepted Risks

As a general rule the Employer will only be liable for loss/expense

incurred by the Contractor which is caused by acts for which the
Employer or his agents are responsible. Also, the recoverable costs
incurred must be “direct” (ie. not consequential).

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Contractual Claims Contractual Claims

(c) Increased Preliminaries (e) Non-recoverable Inflation

Contractually speaking, increased Preliminaries should be the Inflation resulting from admissible causes of loss/expense and
actual increase and might or might not relate to the priced related to items which the Contractor had not managed to secure
Preliminaries in the Bills of Quantities, which may have been a fixed price, should be allowed if such falls outside the scope of
priced high or low due to pricing tactics. the Contract Fluctuations Clause, where applicable.

The stage of the works when the delay occurred should also (f) Head-Office Overheads and Profit
be considered, e.g. if the delay occurred right at the beginning
of the Contract before any major work trade is involved, it can Loss/expense under this particular heading is not usually
be assumed that the full management team had not yet been sufficiently "direct" to be acceptable without specific proof and
deployed and the monthly site overheads would be substantially agreement. No extra is payable if it is an indirect cost e.g. possible
less than average. loss of new contracts. There are a number of formulae which are
available in the industry which, subject to reasonable proof of
(d) Disruption loss, may be considered as acceptable assessment methods for
use in calculating head office overheads and profit (e.g. Hudson’s,
“Disruption” normally relates to a delay to the regular progress of
Emden, Eichleay etc.). However, the formula must be used with
the works or any part thereof, claims for which could include:-
extra caution as their applicability is subject to certain conditions
being satisfied.
- Loss of productivity in work;
- Standing time or idling of labour/plant resources;
In any event, the onus of proof and substantiation rests with the
- Overtime working (labour/plant);
Contractor.
- Abortive works or materials.

(g) Finance Charges

The above list is not exhaustive and there may be other events
that fall under the heading of disruption claims.
The question of finance charges is very complicated and is
dependent on legal interpretation. Claims under this category
The Contractor should provide substantiation to prove its
must be handled with utmost care. The following should be
entitlement and the method of assessment is normally to
considered when dealing with such claims :
compare productivity of undisrupted activity with that of the
disrupted activity, where they are similar in nature.
( i) I n t e re s t r a t e s s h o u l d b e c a l c u la t e d a t a c t u al a n d
realistic rates.
Any assessment of disruption should be verified with the
Architect/Engineer as to the facts and the actual effects on the
(ii) Interest on alleged under-certification would only be
progress.
allowed if the under-certification is a result of gross
error or negligence.

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Contractual Claims Contractual Claims

(c) Increased Preliminaries (e) Non-recoverable Inflation

Contractually speaking, increased Preliminaries should be the Inflation resulting from admissible causes of loss/expense and
actual increase and might or might not relate to the priced related to items which the Contractor had not managed to secure
Preliminaries in the Bills of Quantities, which may have been a fixed price, should be allowed if such falls outside the scope of
priced high or low due to pricing tactics. the Contract Fluctuations Clause, where applicable.

The stage of the works when the delay occurred should also (f) Head-Office Overheads and Profit
be considered, e.g. if the delay occurred right at the beginning
of the Contract before any major work trade is involved, it can Loss/expense under this particular heading is not usually
be assumed that the full management team had not yet been sufficiently "direct" to be acceptable without specific proof and
deployed and the monthly site overheads would be substantially agreement. No extra is payable if it is an indirect cost e.g. possible
less than average. loss of new contracts. There are a number of formulae which are
available in the industry which, subject to reasonable proof of
(d) Disruption loss, may be considered as acceptable assessment methods for
use in calculating head office overheads and profit (e.g. Hudson’s,
“Disruption” normally relates to a delay to the regular progress of
Emden, Eichleay etc.). However, the formula must be used with
the works or any part thereof, claims for which could include:-
extra caution as their applicability is subject to certain conditions
being satisfied.
- Loss of productivity in work;
- Standing time or idling of labour/plant resources;
In any event, the onus of proof and substantiation rests with the
- Overtime working (labour/plant);
Contractor.
- Abortive works or materials.

(g) Finance Charges

The above list is not exhaustive and there may be other events
that fall under the heading of disruption claims.
The question of finance charges is very complicated and is
dependent on legal interpretation. Claims under this category
The Contractor should provide substantiation to prove its
must be handled with utmost care. The following should be
entitlement and the method of assessment is normally to
considered when dealing with such claims :
compare productivity of undisrupted activity with that of the
disrupted activity, where they are similar in nature.
( i) I n t e re s t r a t e s s h o u l d b e c a l c u la t e d a t a c t u al a n d
realistic rates.
Any assessment of disruption should be verified with the
Architect/Engineer as to the facts and the actual effects on the
(ii) Interest on alleged under-certification would only be
progress.
allowed if the under-certification is a result of gross
error or negligence.

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Contractual Claims Contractual Claims

(iii) Finance charges in order to finance the project in terms

of larger contract values (due to loss/expense) and
contract prolongation might be allowable if the
Contractor eventually succeeds in his claim for loss/ 
expense or contract prolongation and such interest is
not already covered elsewhere.

(iv) The claimed interest shall be subject to proof of the

actual costs incurred.

4. Ascertainment and Payment

The task of ascertaining the amount of a Contractor’s loss/expense

normally rests with the Architect unless he specifically instructs the
Quantity Surveyor in writing to do this on his behalf.

Any amounts of a Contractor’s loss/expense, which are ascertained

from time to time, may be included in any interim certificate that is
issued after the date of such ascertainment and it should be noted that
payment of any ascertained amounts for claims shall not be subject to
retention. Early ascertainment (and certification by the Architect) has
the effect of reducing the amount of any finance charges that may be
payable by the Employer. The payment of any amounts that have not
been “ascertained”, when considered necessary in order to achieve a
settlement, should only be made if authorised by the Employer.

Claims are sensitive issues and it is advisable to keep the Architect/ 

Employer notified of every step in the claim assessment and
negotiation process and to obtain the Architect/Employer's
acknowledgement before agreeing with the Contractor.

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Contractual Claims Contractual Claims

(iii) Finance charges in order to finance the project in terms

of larger contract values (due to loss/expense) and
contract prolongation might be allowable if the
Contractor eventually succeeds in his claim for loss/ 
expense or contract prolongation and such interest is
not already covered elsewhere.

(iv) The claimed interest shall be subject to proof of the

actual costs incurred.

4. Ascertainment and Payment

The task of ascertaining the amount of a Contractor’s loss/expense

normally rests with the Architect unless he specifically instructs the
Quantity Surveyor in writing to do this on his behalf.

Any amounts of a Contractor’s loss/expense, which are ascertained

from time to time, may be included in any interim certificate that is
issued after the date of such ascertainment and it should be noted that
payment of any ascertained amounts for claims shall not be subject to
retention. Early ascertainment (and certification by the Architect) has
the effect of reducing the amount of any finance charges that may be
payable by the Employer. The payment of any amounts that have not
been “ascertained”, when considered necessary in order to achieve a
settlement, should only be made if authorised by the Employer.

Claims are sensitive issues and it is advisable to keep the Architect/ 

Employer notified of every step in the claim assessment and
negotiation process and to obtain the Architect/Employer's
acknowledgement before agreeing with the Contractor.

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Nov. 2012