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Making head office overhead and profit claims

This post looks at the practical steps in making head office overhead and profit claims, referring to Akenhead J’s blockbuster decision in Walter Lilly v Mackay. Most will know that the court rejected the Scottish (apportionment) approach to concurrent delay and, no doubt, almost all will know of Mr Mackay’s uncompromising approach to his contractor and professional team. However, this article is about neither of those aspects…

…in addition, the case gives useful guidance on what is needed to prove head office overhead and profit claims, which (in short) seems to amount to a lever arch folder, a weekly meeting and a willingness to file. The court also appears to have relaxed the test of “ascertainment” in loss and expense claims.

The basis for the claims

Typically, a contractor makes an overhead and profit claims when it has been delayed by an event or events for which the employer is responsible. It is a separate and additional claim to those made for increased preliminaries or site overheads. The contractor’s losses are said to arise because it is unable to take on new work, on which it would earn profit, and because it misses out on the opportunity to defray its head office overhead by a contribution from those new projects.

Akenhead J’s four principles

The contract in Walter Lilly v Mackay was a JCT 1998 Standard Form of Building Contract, amended by the parties. Although the specifics of the judgement apply to that form, the principles apply more generally. In respect of the overhead and profit claim, the court concluded that:

  • A contractor can recover overhead and profit lost as a result of delay if that delay was caused by factors which entitle it to loss and expense (these factors, or relevant matters, are listed in the contract).
  • The contractor must prove, on the balance of probabilities, that if the delay had not occurred it would have secured new work or projects, which would have produced a return.
  • Using a formula, such as the Hudson or Emden formula, is a legitimate way of determining  entitlement on the balance of probabilities.
  • “Ascertainment” by the contract administrator of these losses does not mean he has to be “certain”.


Starting with the final point first, the accepted wisdom was that “to ascertain” under a JCT contract meant “to find out for certain”. Therefore, it did not connote as much use of judgement or opinion-forming as “assess” or “evaluate” would have done (see HHJ Lloyd QC in Alfred McAlpine Homes North v Property and Land Contractors (1995) 76 BLR 59, at page 88).

This accepted interpretation of “ascertainment” had often been used to justify asking for every conceivable detail and document as a means to restrict claims.

Akenhead J modifies this approach. He explained that “ascertainment” does not exclude assessment and that it does not mean the certifier or dispute resolver had to be certain beyond reasonable doubt. Rather, he had to be confident that the loss or expense allowed had actually been incurred (paragraph 543). To put it another way, ascertainment should be looked at in a sensible and commercial way and the claim allowed when the certifier or dispute resolver is satisfied on the balance of probabilities (paragraph 468). If it is more likely than not that the cost was incurred in respect of the relevant matter then it must be allowed.

Proving the loss

The difficult part of any claim of this sort is evidential: what do you need to show in order to prove that you would have secured work and made a profit?

The court noted that the contractor relied on five key items:

  • It produced an over-arching witness statement explaining how its business worked. Particularly relevant was the fact that it used only directly employed staff (and not agency workers) in lead roles on contracts. It was therefore not an answer to the claim to say that they could have hired temporary managers to take on new contracts.
  • The witness statement also explained that a weekly review was carried out of forthcoming tender opportunities and staff availability, allowing the contractor to submit or reject contract opportunities to match staffing levels.
  • Crucially, the contractor had kept records of tenders submitted and jobs won. This amounted to a success rate of one in four. Further, it kept a list of tenders that it had declined. These were all listed in an appendix to the statement.
  • Witness evidence also identified the key employees that were held up on the project, that this was a reason for declining opportunities and that it was the director’s belief that, had they tendered, they would have won more work.
  • Company accounts showing the percentage recovery for head office overhead and profit were produced and expert evidence calculating the weekly loss was put forward.

As a result, the court found that work was available, that it had been declined due to the employer’s delays, and that the contractor had lost a contribution to head office overhead and profit. In calculating the claim, the contractor’s expert had given credit for the overhead and profit earned on the works that was in excess of the tendered allowances (presumably that from variations). The court endorsed that approach.

And how does filing help?

While it may be possible to recreate the information that the contractor relied upon, contemporary records are best, and every contractor and sub-contractor would be well advised to keep a note of:

  • Every tender submitted.
  • The outcome.
  • Every suitable tender turned away.
  • The reason(s) for declining any tender.

This will provide evidence of availability of work, the likelihood of winning it and (potentially) a link to the delayed job. The contractor had recorded this information and the detailed schedule provided in evidence was key in convincing the judge to award them over £250,000, in spite of significant arguments raised by its employer.

5 thoughts on “Making head office overhead and profit claims

  1. Hi I have a similar problem to the one described , I have a contract which is currently in delay by 13 weeks . as a result I have been unable to start on site and my contract period has been reduced from 30 weeks to 16 weeks , However I and my staff have been actively working on this project throughout the delay and I am sure even though I am not actually on site I should still be entitled to as a minimum over head and probably profit . I note the paragraph regarding every conceivable detail being requested because that is exactly what I am being asked for even though most of the information requested will not be relevant for months , I am not a big contractor and fear that I will be turned over if I don’t get some advice quickly but don’t know were to go

  2. David, please get in touch. My contact details can be found by clicking through from my name at the top of the article.

  3. If the contractor is therefore making a return on all variations agreed along with this percentage on any Eot associated, does that then provide oh&p recovery?

  4. Delays by client 18 weeks extension of contract Engineer does not want to pay for any overheads eg head office . I believe that this is wrong headed is it? I prorated the original overheads is this correct or should it be actual? Thanks for your assistance

  5. If the contractor is suffering a significant contract extension (contract duration has been doubled) was made by the Employer.
    The contractor allows certain profit under the tendering item for providing insurance.

    Is that a MUST that the contractor shall claim for providing extended insurances in term of ‘direct’ losses & expense WITHOUT profit.

    How to elaborate the expected profit (as per the tender price) due to the extended insurances properly?

    Thank you for your advice.

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