Delays, Disruptions, and Diminished Margins: Reassessing Loss Claims in Indian Construction Law

Loss of Profit claims by a contractor are premised on the assertion that the contractor has incurred financial losses due to the act of illegal and premature termination of the contract by the employer. Loss of profitability, on the other hand, is a claim made by the contractor of a decrease in the profit percentage in a contract on account of delays and disruptions in the work due to the actions attributable to the employer. Due to the homonymic nature of the terms, several judgments in India confuse one with the other and misunderstand the underlying principles of law applicable to grant such claims. The confusion could also have arisen from the fact that the seminal judgments in the UK on this topic do not make separate rules or guidelines for making such claims, but base them on the fundamental principles of foreseeability and remoteness. This article reassesses the principles underpinning the calculation for both and aims to clear the confusion. This article also deep dives into the wellknown formulae for claiming losses on account of delays and disruptions such as the Hudson, Emden, and Eichleay formulae, which have also been recognised by the Supreme Court in Mcdermott International v Burn Standard. Additionally, this article also discusses the additional criterion developed by courts for applying the above formulae, i.e., providing some form of documentary proof of loss. Part I delves into the historical evolution of, and the distinction between Loss of Profit, Loss of Profitability and Loss of Chance/ Loss of Opportunity claims. Part II discusses and critiques the prevailing formulae for loss of profitability. Part III proposes suggestions and the way forward for using the formulae and a suggestion for a new formula more suited to India and small contractors.