Cost or Cost Plus Profit: What FIDIC Actually Lets You Recover

Two contractors suffer the same event on the same job and recover different money, because one claimed under a clause that carries profit and the other did not.

This is the least glamorous part of FIDIC claims and one of the most expensive to get wrong, because the mistake is invisible: you recover what you asked for, and nobody tells you that the clause allowed more.

The definitions

The 2017 General Conditions define the two terms precisely.

Cost is all expenditure reasonably incurred, or to be incurred, by the contractor in performing the contract, whether on or off the site, including taxes, overheads and similar charges, but does not include profit.

Cost Plus Profit is Cost plus the percentage for profit stated in the Contract Data — and if none is stated, five per cent.

Two things in there get missed in opposite directions.

Overheads are inside Cost

Taxes, overheads and similar charges are part of Cost by definition. Contractors habitually substantiate only direct site expenditure — labour, plant, materials, subcontract — and leave the overhead contribution out, then wonder why a successful claim still loses money. It is recoverable because the definition says so. It has to be evidenced and apportioned on a defensible basis, which is a different problem from whether it is allowed.

Profit is outside Cost

Where a clause gives you Cost, that is the end of it: no profit, however reasonable. Where it gives you Cost Plus Profit, the uplift is whatever the Contract Data says, and five per cent only when the Contract Data is silent. Check what your Contract Data says. It may well not be five.

Which clauses carry profit

It varies clause by clause, and that is the point.

Clauses in the 2017 suite that expressly give the contractor Cost Plus Profit include 1.9 (delayed drawings or instructions), 1.13 (where the employer delays in obtaining permits or approvals) and 2.1 (failure to give right of access to the site). What those have in common is a theme: where the employer’s own failure caused the problem, you are generally made whole including profit.

Other clauses give Cost alone. Which ones, under which edition, with which particular conditions bolted on, is the question — and it is deliberately not answered here with a table.

A published table of clause entitlements is the sort of thing that looks authoritative, gets bookmarked, and quietly misleads somebody whose contract was amended. Almost every real FIDIC contract is amended. The particular conditions routinely change the measure of recovery, and the edition changes the numbering. A table built from a standard form and applied to an amended one is worse than no table, because it stops you looking.

So build your own, once

This is an hour of work at the start of a job and it pays for itself the first time anything goes wrong.

Take your executed contract — general conditions as amended by the particular conditions, not the standard form — and go through every clause that gives the contractor an entitlement to money. For each one, record three things:

• the clause number as executed
• whether it gives Cost, Cost Plus Profit, or something the amendments have invented
• the notice requirement and the period attached to it

That is your claim map. It lives on one page, it goes in the commercial file, and it gets read by whoever drafts a notice.

Why this connects to the notice

Because of what the courts have done with notices. In Maeda v Bauer the Hong Kong Court of Appeal held that the contractual basis stated in a notice is the basis the claimant is held to — it could not notify on one basis and succeed in arbitration on another.

Put those two facts next to each other. The clause you name in the notice determines the measure of recovery, and you are stuck with the clause you name. Which means the decision about Cost versus Cost Plus Profit is effectively taken in week one, by whoever drafted a document under time pressure with the claim map sitting unread in a folder — or not written at all.

That is the whole argument for doing the mapping before anything happens. There is more on the notice cases here.

What it is worth

Take a claim where recoverable Cost comes to 850,000. At five per cent, the profit element is 42,500. On a contract with a tendered margin of 10 per cent, that one distinction is equivalent to 425,000 of additional turnover won and built at no risk.

Nobody will point it out. The engineer is not obliged to value a claim more generously than the clause you cited.

The point

Cost excludes profit, overheads do not, and which measure applies is a property of the clause you claim under rather than of the fairness of your situation.

Map it once from the contract you actually signed, keep it next to the notice register, and read it before writing the sentence that names the clause.

Definitions above are from the 2017 General Conditions; earlier editions word this differently. Any real contract’s particular conditions govern. Practical guidance for commercial teams, not legal advice.