Difficult sums

This is a story about a delayed start to a building contract. The builder was left idle in that time; his turnover plummeted, as did his income to pay for his overheads. So, he sued for his losses and won. To help in all this, he used the overhead recovery device called the Hudson Formula. The story looks straightforward, but I am not convinced. I will go further: if this affair had come to adjudication or arbitration to be decided by a construction person, the builder may well have lost. Bear with me.

Beechwood is an established housebuilder. It does one project at a time and always for its sister development company Westpoint. The developer finds the land, Beechwood applies for planning and sorts out the building regs, formally prices the job and builds the houses. Turnover runs to £1-2m a year. The margins are healthy. It is a neat and tidy enterprise doing a good job. The managing director of Westpoint is the managing director of Beechwood.

A garden centre in Bearsden, Scotland, came on the market as suitable for development. Beechwood engaged Stuart Mitchell, trading as Discovery Land Surveys, to carry out a topographical survey. His layout plans were used in the planning application for 28 apartments in several blocks. But he made a mistake. He plotted a small stream in the wrong place.

Shortly before Beechwood should have begun the work, the mistake was noticed. It was significant enough to require one block to be relocated; that meant a fresh planning application. It was eventually granted, but the upshot was that Beechwood said it was stumped for work for 22 weeks, during which time it was deprived of income and had to pay more to the timber-frame manufacturer because of inflation. Discovery Land Surveys admitted the error but rejected the claimed losses, which were upwards of £100,000.

The trial, Beechwood Development Company (Scotland) Ltd vs Stuart Mitchell t/a Discovery Land Surveys [Court of Session, February 2001], focused first on the actual delay. The judge very thoroughly examined the facts. He decided that 10 of the 22 weeks were down to the defendant's mistake. Then he inquired into the alleged losses.

Beechwood didn’t really lose its profit at all. It was delayed. Instead of earning that money at a particular time, it earned it 10 weeks later

There were three heads. The first was keeping the site secure. A general labourer looked after things. The cost of that was claimable for 10 weeks. That was easy.

The second head was the timber-frame maker's zooming price. This put £23k onto the £320k cost. I don't doubt the uplift is right, but the arbitrators and adjudicators of this land would not take that figure at face value. It would have to be dug into. Ten weeks is a tad short for £23k.

Then comes the third head. It is the claim for lost income. This is where the Hudson Formula was offered as a device for calculating the loss. It comes from Hudson's Building and Engineering Contracts, 11th Edition. The builder's turnover for the year was to be £1.4m. Beechwood's average charge for overhead and profit in the previous two years was 14.7%. So it claimed £3100 a week for 22 weeks. The judge said 10 weeks and awarded £31,000.

Altogether, Mitchell was found liable for £60k. The worry I have is that Beechwood didn't really lose its overhead and profit at all. It was delayed. Instead of earning that money at a particular time, it earned it 10 weeks later. And since it did one job at a time, its next job was merely delayed by the same 10 weeks. Only one short sentence in the judgment deals with this: "There is nothing to suggest the lost time was ever made up." And that is where an adjudicator or arbitrator might have reached a different conclusion from the learned judge.