TONY CHAPMAN ADVICE
Fighting back With government spending cuts well underway, businesses could face contract breaches and cancellations. But all may not be lost, says Tony Chapman
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ast year’s public sector spending review will affect virtually every electrical business in some way. Many analysts predict a marked reduction in spend on anything other than essential care and maintenance, with new-build and refurbishment projects becoming rare. Get set then for contract renegotiations, deferrals and cancellations. Many electrical contractors will be left out of pocket, having geared up to service contracts that will be cancelled, shrink or be deferred. In such cases a contractor or supplier may have the right to seek damages for breach of contract. If there is a right to claim, the chances of success will be markedly improved if good evidence of the losses incurred can be provided. Too often good legal claims produce little reward because the claimant is unable to evidence properly the losses suffered. Here are a few simple tips that may improve your chances if you find yourself in a position where a party seeks to cancel, or vary, a contract and you are likely to suffer a substantial detriment as a result.
Seek legal advice Take advice promptly: you need to understand your rights and this is not straightforward. A solicitor can advise what rights and obligations are conferred by the contract and what you need to do. It may be important to ensure your position is not prejudiced by unwittingly accepting variations or cancellations, or even finding yourself accused of breach.
ILLUSTRATION: CAMERON LAW
Record losses Take time to think through the full commercial implications of any variation or cancellation. You may well have a duty to take reasonable steps to mitigate any losses and it might be that you later have to justify what you did. Recording your thought processes contemporaneously may help to defend against arguments that you could, and should, have done something else. Legally, you may be entitled to be put in the position you would have been in had the contract been performed in accordance with its terms. Ensure
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that you identify and record your realistic expectation of the commercial outcome of the contract (the revenue and incremental costs expected, the risks and other consequential costs and revenues) because this may form the basis of the claim. Good evidence may be realistic contract costings or the information provided in tenders or pre-contractual documents. Make sure all the costs of taking mitigating action, including management time, are properly recorded. As an alternative, you may be entitled to recover the costs you have wasted. Record what you spent in bidding for the contract and in setting yourself
‘Tell the customer or client of your intention to seek compensation and provide an estimate of the level of losses and costs as soon as you can’ up to perform it, as well as the costs incurred in scaling down or terminating structures that are no longer required. Keep such records in an easily identifiable way. Treating the loss as if a separate business or cost centre and attributing or apportioning costs to it may be appropriate. It is easier to identify why a cost is incurred at the time rather than a year or so later.
Customer communication Finally, tell the customer or client of your intention to seek compensation. Provide an estimate of the level of losses and costs as soon as you understand there may be breach and update this as you go along. This might help persuade the customer that breaching the contract may not be such a good idea in the first place. In any litigious situation there are no guarantees that you will be adequately compensated. However, a little planning and effort can improve a bad situation. Tony Chapman is a forensic services partner and head of dispute services at Baker Tilly
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