<img height="1" width="1" style="display:none;" alt="" src="https://px.ads.linkedin.com/collect/?pid=1556145&amp;fmt=gif">

30 August 2019

What is a "global claim" under a construction contract?

A global claim is where a contractor makes a claim for a single amount of money by reference to multiple underlying causes or events. They typically arise in the context of delays where there are multiple, concurrent causes of delay.


Overview

When a project falls into delay, there will often be more than one cause of the delay. Where those causes of delay are causes for which compensation is payable to the contractor, it can be difficult for the contractor to establish which losses were caused by which delays. This is where global claims most commonly arise.

Some respondents (principals or head contractors) seem to take the view that, as a matter of law, global claims are simply not allowed. In Australia, this is not correct. (See, for example, the discussion in this 2014 NSW Court of Appeal decision here.)

The courts have consistently found that there is nothing inherently wrong with global or total cost claims. A commonsense approach is required to be taken.

However, the courts have said that global claims should be treated with caution, and there are several conditions that must be met before they will be allowed. These issues are discussed in more detail below.

The two ways to establish a delay cost entitlement

To recover an amount for delay or disruption costs, the claimant (contractor) will be required to prove a link between the cause of the delay or disruption and the cost that is claimed to have arisen.

Where there is only one cause of delay, this task should be relatively straightforward.

However, where there are multiple concurrent causes of delay, the exercise can become more complicated. And it is this complication that will typically lead a contractor to make a global claim.

If the contractor can link specific losses to individual delay events, this will always be the surest way for the contractor to establish an entitlement. This method involves the contractor dividing up its costs, and then tying those costs to specific delay events or causes. In other words, the Contractor will show how Cause A gave rise to Cost 1, Cause B gave rise to Cost 2, Cause C gave rise to Cost 3, and so on.

In contrast, a global or total cost claim is where the contractor does not attempt to disentangle the different costs and causes of delay.  Instead, the contractor simply alleges that all of the costs claimed are the net effect of the various delay or disruption events that have occurred.

Pros and cons of global claims

Global claims are usually fairly easy to present, which is what makes them attractive to claimant contractors.

However, a global claim will only be allowed where all, or substantially all, of the underlying events are causes that will entitle the contractor to claim compensation.  This is a fundamental precondition of a global claim, and one that is often overlooked by claimants.

This requirement exists because all global claims are prefaced on the assumption that all of the costs claimed by the contractor have arisen from events for which compensation is payable. If that assumption can be shown to be false, the claim is likely to fail (probably in its entirety).

To illustrate the point, say the contractor claims that Loss 1 is the net effect of events A, B, C and D, without providing any further explanation. 

If the respondent (principal or head contractor) can establish that at least some of Loss 1 might have been caused by events for which the contractor was responsible, the claim will face a real risk of failing. This is because the onus lies on the claimant to prove the connection between the delay or disruption event (or events) and the costs that are said to have arisen.

This connection can be inferred where all of the underlying events are compensable. However it can easily be broken by the introduction of non-compensable causes of the additional cost. And if it is impossible to disentangle the causes and costs, this may make it impossible for a court to be satisfied that any of the costs claimed by the contractor have in fact been caused by compensable causes. And it is this issue that will often cause a global claim to fail, and why global claims are often seen as an "all or nothing" approach.

When can a global claim be made?

A claimant should only bring a global claim where it is impractical to disentangle the combined loss attributable to the alleged breaches and the impracticality was not caused by the claimant (for example, by failing to keep adequate records).

When presenting a global claim, a claimant will need to:

  • ensure there are no other causes of the cost claimed, and this should be clear from the face of the claim; and
  • ensure there is no duplication between the amounts comprising the global claim and any other amounts that might be payable to it.

A contractor who intends to make a global claim should expect to be met with a defence by the respondent (principal or head contractor) to the effect that (1) the contractor has caused at least some of the cost claimed by its own negligence and/or delay (eg poor management, labour shortages, subcontractor non-performance etc) and/or (2) the contractor originally under-resourced and/or under-quoted the project, and the contractor's claim is merely for costs that always should have been allowed for. If the respondent is able to establish either of these arguments, the claim will likely fail.

Sometimes claimants will seek to present a global claim according to the following formula:

Claim Value = Total Cost of Project - Contract Price

This type of claim is often referred to as a "Total Cost Claim".

Where this approach is adopted, a former judge of the Victorian Supreme Court, the Honourable David Byrne QC, has suggested in his article Total Costs and Global Claims that the following conditions must be satisfied:

  1. The contract price must be realistic.
  2. The actual cost figure must represent a reasonable cost of carrying out the project, including the extra work required due to the events giving rise to the entitlement to compensation.
  3. No factor other than the compensable events are responsible for the difference between the actual cost and the contract price.

A claimant seeking to present its claim in this way will need to keep these factors in mind.

Key Takeaways

If you are a claimant (contractor), you should consider a global claim as a claim of last resort. You should only contemplate making a global claim if the traditional approach (tying specific costs to individual causal events) is entirely impracticable. Further, if any of the concurrent causes of delay include causes for which no compensation is payable, your claim may be at serious risk of failing.

If you are a respondent (principal or head contractor), you should not automatically assume that a global claim is destined to fail. There will be circumstances in which global claims can succeed. For this reason, you will always need to treat a global claim on its merits, having regard to the principles set out above.

New call-to-action

About the Author

Greg Henry | Principal

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Greg Henry | Principal

Author

Greg Henry | Principal

greg.henry@turtons.com

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

Join our free construction law newsletter.

Monthly insights and practical tips delivered straight to your inbox.

Resources
Careers