| An ex-gratia payment to a contractor is one not | | | | |
| legally due under the contract or otherwise and | | | | Consideration of ex-gratia claims may normally be |
| usually represents compensation paid to the | | | | deferred until after the contract is complete, |
| contractor on grounds of hardship, sympathy or | | | | because only then can the loss and hardship to |
| fair-play. A hardship payment may be described | | | | the contractor can be truly assessed. However, |
| as one which is made without any legal obligation | | | | the employer may consider, subject to financial |
| to do so. It is entirely discretionary. Hence, a loss | | | | regulations, payment on ex-gratia basis, |
| by a contractor on a contract is not itself a | | | | considering the circumstances in question, such as |
| justification for making an ex-gratia payment. The | | | | in the attempt to ease out the severe crisis in |
| fact is that the risk of loss is inherent in any | | | | the cash flow so as not to affect the progress |
| commercial transaction and a contractor should | | | | on site. It should be noted that this is not to be |
| expect in the normal course of business to offset | | | | referred to as on-account basis. |
| loss on one contract against the profit on another. | | | | |
| | | | | In nutshell, the contractor should demonstrate |
| A situation might arise however, where because | | | | that a genuine effort has been taken to mitigate |
| of exceptional circumstances, it would seem | | | | delay by acting diligently and proactively as per |
| reasonable to consider a claim from a contractor | | | | the standard norms and customs of the building |
| for an ex-gratia payment where he is able to | | | | trade. It is not to compensate pricing errors but |
| demonstrate that he has suffered undue hardship | | | | may be for instance the unprecedented price |
| through circumstances outside his reasonable | | | | escalation in the open market as a result of a |
| control which could not have been foreseen or | | | | global phenomenon. This is particularly admissible |
| avoided. Any discussion with the contractor must | | | | when the contract is silent rather than in a |
| therefore carry the 'without prejudice' caveat. | | | | contract where the provision of price escalation |
| | | | | has been purposely deleted, for instance. |
| Consideration will not normally be given to claims | | | | |
| from contractors who are under report for | | | | It is the contractor who shall send to the Engineer |
| unsatisfactory work, under threat of imminent | | | | once in every month an account giving particulars |
| bankruptcy, receivership or administration, | | | | (as full and detailed as possible) of all claims for |
| suspected of attempted fraud or in liquidation, | | | | any additional expense to which the contractor |
| where the concession would merely result in | | | | may consider himself entitled. The engineer’s |
| placing money in the hands of creditors. | | | | role in connection with claims is to authorize |
| | | | | payments due under a proper review on the |
| Also, a payment of an ex-gratia claim should | | | | contractor’s submission. Accordingly, it is not |
| never exceed the actual amount of loss suffered | | | | only a U-turn to standard clauses when the |
| by the contractor (calculated by taking the | | | | engineer commits to notify of any financial |
| unavoidable direct costs incurred plus reasonable | | | | implications to the contractor (as in some cases) |
| overheads and deducting the contractual amount | | | | but also a serious breach of ethics on the part of |
| due). Where the contract was originally let after | | | | the engineer to initiate claims on behalf of the |
| competition, and the loss arises out of | | | | contractor. This is inaptness when the |
| circumstances peculiar to the contractor (that are | | | | engineer’s role is basically to protect the |
| unlikely to have happened to another successful | | | | interests of the employer being impartial in |
| tenderer) it may be appropriate to limit any | | | | contract administration. It is in fact the contractor |
| payment to the difference between the contract | | | | who should decide the basis of his own claims |
| price and the value of the next lowest tender in | | | | pending submission at his own choice as he |
| the original competition. A careful examination of a | | | | deems strategic or appropriate. As such, no |
| contractor's financial position must therefore be | | | | claims on ex-gratia basis would be initiated by the |
| made before making an ex-gratia payment. | | | | engineer under any circumstance. |