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Claim costs for managers’ time

No-one who has ever been involved in a claim situation will doubt that it can really disrupt business, says Roger Button.

Apart from the need to obtain professional advice, you will need to investigate the situation, decide on both short-term and long-term remedies and then implement them. The one thing that is inevitably neglected will be the everyday task of taking forward the business.

Can the business get compensation for the loss of this management time?

Until recently, it was thought this was, for practicable purposes, impossible unless additional staff were recruited. The thinking was that, as the business would simply have paid the same salaries to the management as it would have done in any event, the business will have suffered no loss.

Times change, however, and ideas with them. The view now is that the business would have paid out salaries to the management team for them to manage the business. However, the benefit of that payment would have been wholly or partly lost to the business since the efforts of the managers will have been diverted to the matters giving rise to the claim.

Diversion of resources

All is not plain sailing, however. The business will have to prove there has been a diversion of management resource which is significant in the context of the business itself.

As with other claims in the industry, this can normally only be done by keeping contemporaneous records. These should include timesheets completed by individual managers every day, giving full details of each claim-related activity -together with the time spent.

This way you can form a view as to whether such disruption is ‘significant’ enough to make a claim.

This is one of those times when small is beautiful. A comparatively small number of hours spent on a problem by the management of a business employing fewer than 50 people would probably be regarded as evidence of significant disruption.

It would be much more difficult to show that the same amount of management time caused significant disruption to a large multinational.

Having established significant disruption, the same records will let that disruption to be valued.

Normally this will be by way of taking the total employment cost of each member of the management team, calculating an hourly rate then applying this rate to the hours spent by the manager in question on the problem.

The result will be a further element of the overall claim which can be used by the business as an additional bargaining counter in negotiations. If no settlement results, then this element of the claim can be taken into account in deciding whether to start legal proceedings for recovery.

Either way, the business will be closer to recovering the full amount of its loss.

Roger Button is a partner with Shadbolt Law and a regular contributor to Construction News.