The contractor’s economic supporting documentation for work including ÄTA work carried out according to the prime cost principle was examined in a recent ruling by the Court of Appeal. The judgment stated that the contractor has an information advantage in relation to the client and the ability to secure supporting documentation for its claim on an ongoing basis, which is why the requirements for the contractor’s evidence are set relatively high. This article briefly reports on the court case and on some additional considerations relating to the requirements a client can impose on the contractor's economic supporting documentation for ÄTA work.
The ÄTA work must be compensated through the prime cost principle (open account) if there is no unit price list, priced bill of quantities or other agreed charging norm and the parties do not agree on a fixed price (ABT 06/AB 04 Chapter 6, sections 6–7). In the case of work on an open account according to the prime cost principle, the client must reimburse the contractor’s actual costs for carrying out the work along with a contractor’s fee (ABT 06/AB 04 Chapter 6, section 9). The contractor has a duty to take care in the performance of the work, which means that the contractor must fulfil its task in such a way that the client obtains the best technical and financial results (ABT 06/AB 04 Chapter 6, section 10, point 1). When applying the prime cost principle, the client is entitled to inspect all original verification supporting the costs (ABT 06/AB 04 Chapter 6, section 10, point 4). The parties may also agree that the contract work will be carried out according to the prime cost principle.
In the well-known Nybropalatset case at the Court of Appeal, the Court of Appeal adopted a view on the requirements that can be imposed when applying the prime cost principle and stated, among other things, the following. If the client contests the assertion that the contractor has incurred a cost, that a cost is attributable to the contract or that the contractor has worked the number of hours invoiced, the contractor must prove that the cost has been incurred, that the cost is attributable to the contract or that the number of invoiced hours has been worked. If the contractor has fulfilled its burden of proof in that regard, it is entitled to receive compensation for its costs and for the hours of work invoiced, provided that it has fulfilled the duty to take care. Nevertheless, the client bears the burden of proving that the contractor has failed in its duty to take care and the financial consequences deriving from that failure.
A new ruling by the Court of Appeal (the judgment handed down by the Court of Appeal for Northern Norrland on 13 March 2024 in case no. T 813-23) stated, among other things, that no significance need be attached to the fact that the client had accepted and paid invoices in a particular format and did not ask to be allowed to examine original verification during the contract when it comes to the question of what requirements can be imposed on the contractor’s economic supporting documentation for a contested invoice. However, the Court of Appeal noted the following defects in the contractor’s economic supporting documentation for the claim:
- There was no report of the type of work that the invoices related to, other than in very general terms,
- the way in which the invoiced work had been carried out was not clearly stated,
- it was not possible to draw any firm conclusions from the texts of the invoices, which were general and only referred to more overall technical matters such as pipe fittings and security.
- the supporting documentation for the invoice was not sufficiently detailed to enable the work to which each invoice related to be assessed,
- the extracts from the contractor’s financial system only showed that a certain number of hours had been reported for certain time periods, but it was not possible to deduce which work operations the reported hours related to, and
- the contractor had not submitted any log books or other supporting documentation for the hours that had been charged.
The Court of Appeal noted, on the basis of the above failings, that the supporting documentation did not provide sufficient information on what work had actually been carried out and that it was not possible to determine the extent to which it constituted ÄTA work that could entitle the contractor to receive compensation in addition to the amounts already paid by the client. The contractor’s action was dismissed.
When the client examines the contractor’s financial supporting documentation for ÄTA work according to the prime cost principle, there may be reasons for imposing requirements to provide a detailed statement of the work it relates to, how the work was carried out, the scope of a particular job, including a link between reported hours and each element of the work carried out, and for it to be possible to link the requirement to what is stated in the contractor’s log book. In the first instance, the client may ask for the claim to be substantiated by means of so-called original verifications, i.e. worksheets, receipts and invoices from suppliers and subcontractors with matching specifications. In addition, the ÄTA requirement must naturally be calculated on the basis of agreed remuneration principles (e.g. hourly rates). The contractor’s duty to take care, which means, among other things, that the client is entitled to receive the best financial results, must also be taken into consideration. If there are any objections in this regard, such as lack of planning and supervision on the part of the contractor, the client should show the financial consequences caused by the failings, i.e. the additional cost/increase in cost caused by the failing.
