A case highlighted back in June was the court of Appeal decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trusts  EWCA Civ 792 which confirmed the principles established in the Merrix case regarding the inter-relationship between budgets and detailed assessment. In short…
- Estimated (budgeted) costs will be allowed as claimed in the budget on assessment and cannot be departed from unless there is a “good reason” (either upwards or downwards).
- Incurred costs (which are not approved at the budget stage but rather only commented upon, if that) are subject to detailed assessment in the normal way.
- The Court of Appeal did not take the opportunity of providing any guidance as to what is a “good reason” to enable departure from an approved budget but rather it will depend upon the circumstances. Having said that, Lord Justice Davies did give a clear indication that a breach of the indemnity principle would constitute a good reason, i.e. the receiving party cannot recover the costs of budgeted work that has not been done. Please also note that you have to look at each stage of the budget and not the budget as a whole so that costs in excess on one stage cannot be clawed back by costs incurred below the agreed level at another stage.
If you require further information on this topic pleas contact Robert Johnson on 020 7822 4000 or email firstname.lastname@example.org.