HT-2020-000448 - [2024] EWHC 1185 (TCC)

TCS claims for “Manpower Costs”, being the difference between: (i) the costs that it incurred in providing both Operational Services and in relation to the development and testing of the Solution; and (ii) the costs that it would have incurred in so doing but for the delays it says were caused by DBS. In the period following the removal of R1-D, these losses are properly related to the removal of that scope. TCS claims the following manpower costs per period and workstream, as summarised by TCS’s forensic account expert, Mrs Wall.

Period 1 (GBP 11.9 million) is an approximately 12-month period from September 2016 to August 2017, covering the delay of the R1-B&BGo-Live from 15 September 2016 to 7 September 2017. Mr Padannayi explained that this period roughly covers the period from the planned R1 Barring and Basics Go-Live (15 September 2016) to the month ending before Go-Live was actually achieved (7 September 2017). His evidence was that TCS incurred manpower costs to maintain the R1-B&B team, which would not have been required had Go-Live taken place as planned. There was intended to be a "big bang" release of R1 Disclosure on 28 November 2016. If that had happened, the R0 support team would have been disbanded and TCS would not have incurred further costs on the R1 Disclosure delivery team. Costs for that R0 support and R1 Disclosure delivery teams were therefore included from December 2016 onwards. However, R1 BAU IT support team would still have been required throughout.

Period 2 (GBP 8.8 million) is an approximately 13-month period from September 2017 to September 2018, being the continued delay of the R1 Disclosure go live until the day before notification from DBS of its intention to terminate R1 Disclosure on 19 September 2018. Mr Padannayi’s evidence was that after R1 Barring and Basics Go-Live, TCS incurred manpower costs to maintain their delivery team to work on the delayed R1 Disclosure which would not have happened had R1 Disclosure Go-Live been achieved as planned in November 2016. TCS would also not have continued to incur R0 support costs.

Period 3 (GBP 3.0 million) is an approximately 18-month period from September 2018 to March 2020, being the absence of the R1 Disclosure Go-Live between the notification from DBS and the actual termination of the Project on 27 March 2020. Mr Padannayi gave evidence that during that time TCS continued to incur costs for R0 support which would not have been necessary if R1 Disclosure Go-Live had happened. He explained that for a couple of months, a small number of R1 Disclosure staff were retained on the DBS account (five in October 2018 and two in November 2018), because TCS wanted to progress R1 Disclosure and did not accept the partial termination. He said, ‘These were key people and we did not want to lose them — we wanted to make sure DBS weren't going to change their position.’

On the basis of my findings on liability, Period 1 relates to a period of critical delay during which TCS has no entitlement to claim losses pursuant to Clause 7. The claim for this period fails in its entirety.

In relation to Period 2, I have found that there was critical delay from 13 June 2018 to 19 September 2018 which was an ‘AUTHORITY Cause’, entitling TCS to claim pursuant to Clause 7.4 for loss and expense. From Appendix VW3-A, it can be seen that the claimed costs for June to September 2018 are as follows:

The top line is what Mrs Wall refers to as ‘verified’ costs. The bottom line is ‘Unverified as to amount’. The aggregate of both lines together forms part of the £23.6m sum claimed, as set out in the table above. The aggregate of the bottom line only forms part of the sum of £9,740,335 agreed between the experts as the total payroll costs for the relevant period for the relevantly allocated personnel included within the TCS claim.

Doing the best I can by a pro-rata of the days, the claimed sum for the period 13 June 2018 to 19 September 2018 would be a total of £1,640,562 (constituting £666,735 (Footnote: ²) verified costs and £973,827 (Footnote: ³) unverified as to amount).

As to ‘verified’ and ‘unverified’, the experts agreed that following the submission of Mr Hain’s Second Report and Mrs Wall’s Second Report, additional payroll information had been disclosed for the period September 2016 to November 2018. The total of the monthly payroll costs for the relevant employees identified by Mr Padannayi indicated by this information is GBP 8,346,640. On Mr Padannayi’s assumption that the actual costs in December 2018 of GBP 92,913 reflect the monthly costs for January 2019 to March 2020, results in total payroll costs of approximately GBP 9,740,335 for the entire claim period to March 2020.

The difference between £9.7m and the claimed amount is due to the fact that Mr Padannayi’s, and therefore Mrs Wall’s calculations use 2012/13 rate cards for the ‘unit cost’ (as distinct from ‘time’) element of the Manpower costs claim.

Based on BCLP’s letter to Bristows of 5 July 2023, Mrs Wall gave evidence that her understanding was that the costs included in the ‘fully loaded cost cards’ account for, amongst other things, the running cost of facilities, employee travel, hotel and visa costs. Mrs Wall recognised that some of these types of costs are included in TCS’s Non-Manpower Costs claim, but is unable to identify what duplication may exist. She also recognised that some of the costs which contribute to the fully loaded card cost may not be incremental to the Project, but considered that some, unidentified, proportion of the difference would represent incremental expenditure not included elsewhere in TCS’s claim. Whilst Mrs Wall expressed the view that any valid Manpower Costs claim would be in excess of its payroll costs of approximately GBP 9.7 million (assuming entitlement for the whole period), Mrs Wall was not able to identify how much in excess of this sum the claim would be for or on what basis. This position is not, in principle, any different to Mr Hain’s evidence that that in circumstances where rate cards incorporate allocations of general overheads (including those identified generically by Mrs Wall, as well as HR, legal, finance, leadership etc,), such allocations rely on assumptions as to the amount of work that will be done in order to recover the anticipated level of overheads.

TCS’s claim cannot succeed on the basis of its rate cards, which include a substantial element of overheads. Although TCS may have incurred additional costs which fall outside of payroll costs and Non-Manpower Costs, TCS has not provided any evidence in relation to the overhead element of the claim or its recovery as a matter of fact (or causation), and TCS has provided no calculation for them. TCS’s claim must be based upon the sums referred to by Mrs Wall as ‘verified’. TCS conceded this in its Closing Submissions (paragraph 183).

The second issue of principle between the parties related to the allocation exercise undertaken by Mr Padannayi. Mr Padannayi took the ‘Monthly Allocation Report’ from TCS’s internal system, Ultimatix, and added two columns, both relating to RFCs. The content of these columns was derived from work he had done speaking to peers and, as a cross-check, his knowledge about RFC timings. It was not suggested to Mr Padannayi that his approach was somehow inappropriate in cross-examination. And, seen in the context of Mr Padannayi’s wider exercise, it is clear he tried to adopt a ‘very conservative approach’ to personnel identification.

In his reports, and as summarised in the Joint Report, Mr Hain had identified that there were ‘Work Order Numbers’ set up by TCS and used by TCS in the management of its business, as evidenced by the fact that costs (including charges of time on timesheets) were allocated to different Work Order Numbers. Mr Hain considered that contemporaneous allocations of cost and charges of time to WON codes was likely to provide more reliable information than making enquiries of colleagues about what particular members of staff were doing many years ago without reference to WON codes.

Mr Hain used the same data source as Mr Padannayi (Exhibits VW1-5.1-28) to determine that £1,496,344 of the actual payroll cost to December 2018 (£8.3m, see 3.1.1 above) was recorded against RFC WON codes and that approximately £3,280,646 of the actual payroll cost to December 2018 was recorded against BAU WON codes. Taking the RFC and BAU costs from the actual payroll costs of £8.3m, leaves an amount of £3.6m (analysis by way of WON codes produced approximately 43% of Mr Padannayi’s analysis).

TCS relies upon the fact that, during cross-examination, Mr Hain confirmed that he did not consider a manpower analysis based on WON codes should be preferred over Mr Padannayi’s approach and that he was not in a position to challenge what Mr Padannayi had done, and he confirmed that he supported a figure at the top of his range, rather than the product of his WON code exercise:

The £1.5m adjustment relates to an adjustment relating to the final months which is relevant to Period 3. In my judgment, particularly in light of Mr Hain’s rowing back from an allocation/adjustment exercise based upon WON codes, I accept that the exercise undertaken by Mr Padannayi was thorough, appropriate and materially reliable.

In the circumstances, the claim for Period 2 succeeds in the sum of £666,735. To the extent that (contrary to my findings above), TCS were entitled to recover its losses in any other period, they would be calculable on the same basis (i.e. payroll data applied to Mr Padannayi’s allocation exercise).

In relation to Period 3, but for the wrongful Partial Termination, but accounting for the preceding delays, I assume that TCS would have delivered R1-D by 19 September 2019, one year from the date of Partial Termination. The costs of maintaining its R0 and R1 delivery costs from September 2018 through to the delivery of R1-D on 19 December 2019 are not recoverable as they are costs associated with carrying out its base scope (albeit late, by reason of the preceding delays for which compensation has been assessed, to the extent relevant). In other words, the analysis assumes that no critical delay is caused to the progress of the works from 19 September 2018 onwards, and that therefore there would be no Clause 7.4 entitlement.

The only Manpower costs in Period 3, which are, in reality, costs caused by the wrongful de-scoping of R1-D, will relate to the period from 20 September 2019 to March 2020.

TCS’s figures for manpower costs are based on the assumption that they remain the same after November 2018, and no actual salary costs have been provided for the period from December 2018 to March 2020, as agreed by the experts at paragraph 3.1.1 of the Joint Report. Mrs Wall requested the actual salary data from her client for this period, but was not given it, and agreed that such data must exist (Day 24/123). DBS contend that in circumstances where TCS gave no explanation for not providing the data, the Court should draw the natural inference that if it had been provided it would not support the sums claimed, and would show TCS’s manpower costs decreased rather than (as assumed within the TCS claim) they remained the same. I agree. There can be no proper basis for failing (essentially refusing, in light of Mrs Wall’s request) to provide actual cost data for the entire period of the claim. There is no evidence, therefore, of what TCS’s actual costs were in respect of manpower during the only relevant period under consideration in Period 3, and in these circumstances, the claim fails.

I therefore conclude that TCS are entitled to £666,735 in respect of its Manpower Costs claim.