Recovering £6.2m of project losses

Our client is a high precision, specialist manufacturer to sectors which include nuclear, oil & gas, petrochemical and power generation. They had agreed a contract to supply bespoke storage boxes to a decommissioning nuclear facility however issues in the employer’s design led to production delays. This caused our client to under recover its contribution to manufacturing overheads that it would have recovered through the contract rates but for the delays.

Our approach

We undertook a review of the various information sources including the contract, the business systems, internal financial data, and the payment notices. It was apparent that these information sources were not fully connected so it was not straightforward to get a clear picture of the actual under recovery.

We worked with our client to understand their cost base, their pricing model and how it allows for manufacturing overheads in the price. We analysed this information against programmes, production data and payment certificates to ascertain that the under recovery was £6.2m.

The quantification of loss was not, in itself, sufficient to prove that our client was entitled to recover these losses. The contract was a bespoke agreement, so we worked with our client’s legal team to understand the contract provisions and ascertain the route for recovery through the contract.

The outcome

With this information in hand, we prepared a report which outlined our client’s entitlement for recovery of the cost heads in line with the contract provisions and explained how the losses were calculated.

We presented the claim to our client’s employer and their advisors to help them understand the basis of the calculations and through these discussions we helped both parties agree how the losses would be applied to any delay events which the parties agreed were caused by our client’s employer.

This was an important first step in the resolution process because each party understood the limit of their potential exposure and agreed how it would be applied to the issues. This enabled discussions to be held with that transparency and without the underlying concern that the claimed amount might increase.