2020 practice and implementation of prolongation cost
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Construction Technology and Management Thesis
2020
Practice and Implementation of
Prolongation Cost Claim, Liquidated
Damage and Extension of Time in
Public Building Construction Projects (A
Case-Study on Bahir Dar University
Building Projects)
Tilahun, Ephrem
http://hdl.handle.net/123456789/11622
Downloaded from DSpace Repository, DSpace Institution's institutional repository
BAHIR DAR UNIVERSITY
BAHIR DAR INSTITUTE OF TECHNOLOGY
SCHOOL OF RESEARCH AND POSTGRADUATE STUDIES
FACULTY OF CIVIL AND WATER RESOURCES ENGINEERING
Practice and Implementation of Prolongation Cost Claim, Liquidated
Damage and Extension of Time in Public Building Construction Projects
(A Case-Study on Bahir Dar University Building Projects)
By
Ephrem Tilahun Zegeye
September 1, 2020
Bahir Dar, Ethiopia
II
Practice and Implementation of Prolongation Cost Claim, Liquidated Damage and
Extension of Time in Public Building Construction Projects
(A Case Study on Bahir Dar University Building Projects)
MSc. Thesis
By
Ephrem Tilahun Zegeye
A Thesis Submitted to the School of Research and Graduate Studies of Bahir Dar Institute
of Technology, Bahir Dar University in Partial Fulfillment of the Requirements for the
Degree of Master of Science in Construction Technology and Management in the Faculty
of Civil and Water Resource Engineering
Advisor: Ahmed Mohammed (PhD.)
Co-Advisor: Rahel Ayalew (MSc.)
September 1, 2020
Bahir Dar, Ethiopia
III
IV
© 2020
EPHREM TILAHUN ZEGEYE
ALL RIGHTS RESERVED
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ACKNOWLEDGMENTS
In preparing this thesis, I was in contact with many people, researchers, academicians and
practitioners. First and foremost, my most grateful thanks go to the almighty God for
guiding and helping me in the completion of the program and to the extent of this thesis.
Secondly, I would like to express sincere gratitude and appreciation from the bottom of
my heart to my advisor Dr. Ahmed Mohammed for his great support, academic advice,
discussions, and suggestions.
I am highly acknowledged to Ato Zewdu Tefera for his valuable comments on this
research starting from the proposal, I am also thankful for Ms.Rahel Ayalew for her
constructive comments starting from the beginning up to the end of this my thesis and
my thanks also goes to Mr. Solomon. Melaku (PhD Candidate) for his best comments
and suggestions.
My deepest gratitude also goes to my mom Laway Motbaynor (the rock), my sister
Betelhem Tilahun, my big brother Yoseph Zelalem and his families, Yordanos Zelalem
and her families, Meskerem Nigusse (love) and Mr.Molla Munie for his constructive
comments and suggestions
I would like to express my appreciation to all organizations and individuals who
contributed directly or indirectly to this thesis and provided the necessary materials and
support for realization of this thesis. Especial thanks are forwarded to contractors,
consultants and client who sacrificed their time in filling the questionnaires.
VII
TABLE OF CONTENTS
ACKNOWLEDGMENTS ..................................................................................... VI
TABLE OF CONTENTS .................................................................................... VII
LIST OF ABBREVIATIONS ............................................................................. XII
DEFINITIONS OF TERMS ............................................................................. XIII
LIST OF FIGURES ............................................................................................ XIV
LIST OF TABLES ............................................................................................... XV
ABSTRACT ....................................................................................................... XVII
CHAPTER ONE ...................................................................................................... 1
INTRODUCTION ................................................................................................... 1
1.1. Background of the Research ............................................................................... 1
1.2. Problem Statement .............................................................................................. 3
1.3. Objectives and Research Questions .................................................................... 4
1.3.1. General Objective ................................................................................................... 4
1.3.2. Specific Objectives ................................................................................................. 4
1.3.3. Research Questions ................................................................................................. 5
1.4. Scope and Limitation of the Study ..................................................................... 5
1.5. Significance of the Study .................................................................................... 5
1.6. Methodology ....................................................................................................... 6
1.7. Organization of the Study ................................................................................... 6
CHAPTER TWO ..................................................................................................... 7
LITERATURE REVIEW ....................................................................................... 7
2.1. Concepts of Building Project Delay ................................................................... 7
2.1.1. Types of Project Delays .......................................................................................... 7
2.1.2. Effect of Project Delay ......................................................................................... 10
2.1.3. Mitigation Measures of Project Delays ................................................................ 11
2.2. Concepts of Liquidated Damage ...................................................................... 12
2.2.1. Construction Contract and Liquidated Damage ................................................... 13
2.2.2. Definition of Liquidated Damage ......................................................................... 14
2.2.3. Purpose and Function of Liquidated Damage Clauses ......................................... 15
2.2.4. The Benefits of Liquidated Damages ................................................................... 16
VIII
2.2.5. The Enforcement of the LDs Clause .................................................................... 17
2.2.6. The Un-enforcement of the LDs Clauses ............................................................. 18
2.2.7. Types of Delay Damages ...................................................................................... 19
2.2.8. Assessment of Liquidated Damage ...................................................................... 22
2.2.9. Difference between Liquidated Damages and Penalty ......................................... 22
2.2.10. Determination of Liquidated Damages Amount ................................................. 23
2.2.11. Provisions of Conditions of Contract ................................................................. 25
2.2.11.1. PPA, 2006 Conditions of Contract ........................................................................... 25
2.2.11.2. FPPA, 2011 Conditions of Contract ......................................................................... 25
2.3. Concepts of Prolongation Cost Claim .............................................................. 26
2.3.1. Introduction ........................................................................................................... 26
2.3.2. Time-Related Cost (Prolongation Cost) ............................................................... 27
2.3.3. Common Heads of Loss........................................................................................ 27
2.3.4. Common Heads of Prolongation Claim ................................................................ 28
2.3.5. Estimating Prolongation Cost ............................................................................... 31
2.3.6. Provisions for Prolongation Cost Claims under PPA and FIDIC Conditions of
Contract ........................................................................................................................... 32
2.3.6.1. Prolongation Cost Claim Provisions under PPA, 2006 Form of Contract .................. 32
2.3.6.2. Prolongation Cost Claim Provisions under FPPA, 2011Form of Contract ................ 33
2.4. Concepts of Extension of Time ........................................................................ 34
2.4.1. Purpose of Extension of Time .............................................................................. 34
2.4.3. Evaluating Extension of Time Claims .................................................................. 35
2.4.4. Information that needs to be considered in Evaluating Extension of Time
Application ..................................................................................................................... 35
2.4.4.1. Construction and Progress Records ............................................................................ 35
2.4.5. Common Mistakes by the Contractor in the Application of EoT ......................... 36
2.4.6. Extension of Time Submissions ........................................................................... 36
2.4.7. Issues in FIDIC MDB, 2010 Perspective on Prolongation of Cost and EoT ....... 38
2.4.8. PPA 2006 Conditions of Contract on Extension of Time..................................... 39
2.4.9. FPPA 2011 Perspective on EoT ........................................................................... 40
2.5 GAP Identification ............................................................................................. 41
IX
CHAPTER THREE ............................................................................................... 42
METHODOLOGY ................................................................................................ 42
3.1. Study Design ..................................................................................................... 42
3.2. Study Area ........................................................................................................ 43
3.3. Sample and Sampling Techniques .................................................................... 43
3.4. Target Populations and Sample Size Determinations ....................................... 44
3.5. Research Design Flow Chart ............................................................................ 46
3.6. Data Collection Method .................................................................................... 47
3.6.1. Questionnaire ........................................................................................................ 48
3.6.2. Documentation Review ........................................................................................ 48
3.6.2.1. Targeted Case Studies ................................................................................................ 48
3.6.3. Secondary Data Sources ....................................................................................... 49
3.7. Data Analysis .................................................................................................... 49
3.7.1. Spearman rank correlation coefficient .................................................................. 49
3.8. Research Validity and Reliability ..................................................................... 50
3.8.1. Research Validity .................................................................................................. 50
3.8.2. Research Reliability .............................................................................................. 50
CHAPTER FOUR .................................................................................................. 51
RESULTS AND DISCUSSION ............................................................................ 51
4.1. Reliability Testing ............................................................................................. 51
4.2. Spearman Rank Correlation Coefficient ........................................................... 51
4.3. Questionnaire Survey ........................................................................................ 52
4.3.1. Respondents General Information ........................................................................ 52
4.3.1.1. The Parties Where Respondents Were Working ........................................................ 52
4.3.1.2. Gender of Respondents ............................................................................................... 53
4.3.1.3. Respondents Job Position in the Company ................................................................. 54
4.3.1.4. Professional Experiences of the Respondents ............................................................ 54
4.3.1.5. Educational Qualifications of the Respondents .......................................................... 55
4.3.2. Issues Related with Liquidated Damage ............................................................... 55
4.3.2.1. Which Test of Liquidated Damage is Easy to Satisfy ................................................ 55
4.3.2.2. Recommendation for Parties to a Contract in the Event of Delays as an Alternative to
enhance the Enforcement of Liquidated Damage Clause ........................................................ 56
4.3.2.3. Possible Impacts of Liquidated Damage Clause in Building Construction Contracts 57
4.3.2.4. The practice of Contract Management Principles in Projects Concerning to
Liquidated Damage.................................................................................................................. 57
X
4.3.2.5. The Challenge of Liquidated Damage Provision in Court ......................................... 58
4.3.2.6. Organizations which follows an Established Cost Estimating Technique
/Methodology in Preparing Liquidated Damage. .................................................................... 59
4.3.3. Questions Related to Prolongation Cost Claims ................................................... 60
4.3.3.1. The Occurrence Level of Prolongation Cost Claim in BDU Building Construction
Projects .................................................................................................................................... 60
4.3.3.2. The Difficulty Level in Estimating Prolongation Cost Claim .................................... 61
4.3.3.3. The Clarity of handling Prolongation Cost Claims in the Clauses or Conditions of
Contract ................................................................................................................................... 62
4.3.4. Questions Related with Extension of Time Claims .............................................. 63
4.3.4.1. Average Delay of the Projects Exposed ..................................................................... 63
4.3.4.2. Action is taken when Projects are Getting Delayed ................................................... 63
4.3.4.3. Availability of Record-Keeping System in the Project .............................................. 64
4.3.4.4. Proper Documentation and Record-Keeping Systems can reduce the number of
Claims ...................................................................................................................................... 64
4.3.4.5. Lost Entitlement to a Claim due to Improper Documentation and Record-Keeping
Systems .................................................................................................................................... 65
4.3.4.6. Type of Claim Most Recent or Current Projects Face ................................................ 65
4.3.4.7. Reasons for Project Delay that Could Justify Extension of Time .............................. 66
4.3.4.8. Common Mistakes by the Contractor during the Request of Extension of Time ....... 66
4.3. Case Study on Extension of Time .................................................................... 68
4.3.1. Case Study-1 ......................................................................................................... 68
4.3.2. Case Study-2 ......................................................................................................... 70
4.3.3. Case Study-3 ......................................................................................................... 71
4.3.4. Case Study-4 ......................................................................................................... 73
4.3.5. Case Study-5 ......................................................................................................... 75
4.3.6. Case Study-6 ......................................................................................................... 77
4.3.7. Case Study-7 ......................................................................................................... 79
4.3.8. Case Study-8 ......................................................................................................... 80
4.3.9. Summary of the Major Reasons for Granted of Extension of Time Case Studies 82
4.4. Case - Study on Liquidated Damage ................................................................ 84
4.4.1. Case Study-1 for Liquidated Damage ................................................................... 84
4.4.2. Case Study-2 for Liquidated Damage ................................................................... 85
4.4.3. Case Study-3 for Liquidated Damage ................................................................... 85
4.4.4. Case Study-4 for Liquidated Damage ................................................................... 86
4.4.5. Case Study-5 for Liquidated Damage ................................................................... 86
4.4.6. Case Study-6 for Liquidated Damage ................................................................... 87
XI
4.4.7. Case Study-7 for Liquidated Damage ................................................................... 87
4.4.8. Sample Calculation for Liquidated Damage/ Penalty Amount for Case-Studies . 88
4.4.9 Summery of BDU Projects that Attracted Liquidated Damage ............................. 89
4.4.10. Analysis of Liquidated Damage Case-Studies ................................................... 90
4.4.11. Correlating the Questionnaire and Case Study Findings .................................... 91
CHAPTER FIVE ................................................................................................... 92
CONCLUSIONS AND RECOMMENDATIONS .............................................. 92
5.1. Conclusions ....................................................................................................... 92
5.2. Recommendations ............................................................................................. 93
5.3. Future Study ...................................................................................................... 94
REFERENCE ......................................................................................................... 95
APPENDIX-1: QUESTIONNAIRE ..................................................................... 99
APPENDIX-2: CLAUSES IN FIDIC MDB, 2010 CONCERNING WITH
EXTENSTION OF TIME AND PROLONGATION COST CLAIMS .......... 105
APPENDIX-3: CERTIFICATE OF PAYMENT OF LIQUIDATED
DAMAGE PAYMENT ........................................................................................ 110
APPENDIX-4: EXTENSION OF TIME CLAIMED AND APPROVED
DOCUMENTS ..................................................................................................... 112
APPENDIX-5: QUSTIONNAIRE RESPONDENT’S RII VALUES OF
RESPONSES ........................................................................................................ 114
APPENDIX-6: EXCELL CORRELATION COEFFICIENT BETWEEN
RESPONDENTS .................................................................................................. 117
APPENDIX-7: SAMPLE SIZE & TARGET POPULATIONS OF THE
STUDY ON-GOING BDU BUILDING PROJECTS ....................................... 118
XII
LIST OF ABBREVIATIONS
BDU …….. Bahir Dar University
BIT ……. Bahir Dar Institute of Technology
EoT …….. Extension of Time
FIDIC ……… Fédération Internationales des Ingénieurs Conseils
FPPA ……… Federal Public Procurement Agency
GCC ………General Conditions of Contract
G ………Contractor’s Extension of Time Granted
LD ……….Liquidated Damage
MDB ………Multilateral Development Bank
MoWUD ………Ministry of Works and Urban Development
PPA ………Public Procurement Agency
RII ………Relative Importance Index
RICS ………Royal Institution of Chartered Surveyors
R ……… Contractor’s Extension of Time Requested
SPSS …………Statistical Package for the Social Sciences
XIII
DEFINITIONS OF TERMS
Conditions of Contract: General terms and clauses of the contract concerning the duties,
obligations, liabilities etc. of both parties where it describes the guidelines to be employed
in contract administration.
Contract: A construction contract that comprise the letter of acceptance, contract
agreement, conditions of contract (general and particular), specification, drawings, BOQ
and any further documents (if any).
Compensable Delay: A compensable delay is a delay caused by the owner or its
representative in which additional time and costs should be granted to the contractor to
complete the project.
Excusable Delay: An excusable delay is defined as the delay caused by factors beyond
the control of the contractor or owner.
Extension of Time: It is a contractor’s time compensation for project completion with the
time he suffers loss due to causes outside his control.
Intended Completion Date: It is the date fixed by the contracting parties during contract
signing.
Liquidated Damage: Refers to an amount that contracting parties, at the time of
contracting, agree shall be payable as compensation in the event of a breach.
Prolongation Cost: Is the recovery of the actual loss that the contractor incurs as a result
of the employer’s delay event which causes a delay in the project completion date.
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LIST OF FIGURES
Figure 2-1: Types of Project Delay ...................................................................................... 8
Figure 2-2: Cost Elements for Liquidated Damage ............................................................ 24
Figure 3-1: Research Design and Flow Chart .................................................................... 46
Figure 4-1: The Parties Where Respondents Working ....................................................... 53
Figure 4-2: Respondents Job Position ................................................................................ 54
Figure 4-3: Educational Qualification of the Respondents ................................................ 55
Figure 4-4: Challenge of Liquidated Damage Provision in Court ..................................... 58
Figure 4-5: Organizations which follows an Established Cost Estimating Technique in
Preparing LD ...................................................................................................................... 59
Figure 4-6: Occurrence Level of Prolongation Cost Claim ............................................... 60
Figure 4-7: Clarity of handling Prolongation Cost Claims in Conditions of Contracts ..... 62
Figure 4- 8: Average Delay of Projects Exposed ............................................................... 63
Figure 4-9: Action is taken when Projects are Getting Delayed ........................................ 63
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LIST OF TABLES
Table 2-1: Effects of Project Delay .................................................................................... 11
Table 2-2: Mitigation Measures of Project Delays ............................................................ 11
Table 2-3: Project Delay Damages ..................................................................................... 19
Table 2-4: Compensation Clauses in PPA, 2006 Conditions of Contract .......................... 32
Table 2-5: Issues in FIDIC MDB, 2010 perspective on prolongation Cost Claim and EoT
............................................................................................................................................ 38
Table 3-1: Sample Size & Target Populations of the Study On-going BDU Building
Projects ............................................................................................................................... 45
Table 4-1: Reliability Testing ............................................................................................. 51
Table 4-2: Correlation Coefficient of the Agreement between the Parties in Rankings .... 52
Table 4-3: Gender of Respondents ..................................................................................... 53
Table 4-4: Professional Experiences of Respondents ........................................................ 54
Table 4-5: Tests of Liquidated Damage Easy to Satisfy .................................................... 55
Table 4-6: Alternatives to enhance the Enforcement of the Liquidated Damage Clause .. 56
Table 4-7: Possible Impacts of Liquidated Damage Clause in Building Construction
Contracts ............................................................................................................................. 57
Table 4-8: Practice of Contract Management Principles Concerning the Liquidated
Damage ............................................................................................................................... 57
Table 4-9: The Difficulty Level in Estimating Prolongation Cost Claim .......................... 61
Table 4-10: Availability of Record-Keeping Systems in the Projects ............................... 64
Table 4-11: Proper Documentation and the Record-Keeping System can reduce no. Claims
............................................................................................................................................ 64
Table 4-12: Lost Entitlement to a Claim due to Improper Documentation and Record-
Keeping Systems ................................................................................................................ 65
Table 4-13: Types of Claims Most Recent or Current Projects Faced ............................... 65
Table 4-14: Reasons for Project Delay that Could Justify Extension of Time .................. 66
Table 4-15: Common Mistakes by the Contractor during the Request of Extension of Time
............................................................................................................................................ 66
Table 4-16: Case Study-1 for EoT ..................................................................................... 69
Table 4-17: Case Study-2 ................................................................................................... 70
Table 4-18: Case Study-3 ................................................................................................... 72
XVI
Table 4-19: Case Study-4 ................................................................................................... 74
Table 4-20: Case Study-5 for EoT ..................................................................................... 76
Table 4-21: Case Study-6 for EoT ..................................................................................... 78
Table 4-22: Case Study-7 for EoT ..................................................................................... 79
Table 4-23: Case Study-8 for EoT ..................................................................................... 80
Table 4-24: Summary of the Major Reasons for Granted of Extension of Time Case
Studies ................................................................................................................................ 82
Table 4-25: Frequency of Major Reasons for Granted of Extension of Time Case Studies
............................................................................................................................................ 83
Table 4-26: Summery of BDU Projects that Attracted Liquidated Damage ...................... 89
XVII
ABSTRACT
The aim of this study is to focus on the practice and implementation of prolongation cost
claim, liquidated damage and extension of time in public building construction projects in
relation to legal and contractual regulations currently implemented in building
construction contracts in Bahir Dar University Building Construction Projects. A thorough
literature review was conducted to study and identify issues related to prolongation cost
claim, liquidated damage and extension of time that are important for designing the
methodology and closed ended questionnaire together with documentation review
developed as a primary strategy for data collection methods. Fifty four respondents’ were
selected for this study Samples for this study comprised of professionals working in Bahir
Dar University (public employer), consultants and contractors who are actively
participating in Bahir Dar University Building Construction Projects. From 50
questionnaires distributed a total of 45 responses were collected with a return rate of 90%,
a descriptive statistical method by using SPSS 21, Relative Importance Index and
correlation coefficient were used for the analysis of the data collected through
questionnaire survey. The questionnaire respondents stated, the major reasons for project
delay that could justify extension of time were ranked late instructions or drawing, delay
in giving possession of site and exceptionally inclement weather respectively. In case-
studies, the main reasons for project delay that could justify extension of time were ranked
late instructions or drawing, late possession of site and additional works respectively. The
damages related to prolongation cost claim are extended and increased site costs (site
overheads or preliminaries), head office overhead cost, inefficiency/ lost productivity cost,
financial charges and interest, inflation, loss of profit/ opportunity cost and claim
preparation costs. Liquidated damage clause is the common mechanism used in Bahir Dar
University building projects to compensate the Owner for losses caused by delays that are
the fault of the contractor.
Keywords: Extension of Time, Liquidated Damage and Prolongation Cost Claims
1
CHAPTER ONE
INTRODUCTION
1.1. Background of the Research
According to Majid, (1997) the construction industry in many developing countries plays
an important role in the national economy, and its contribution to gross national product
and employment have a major role. Despite this important role, the construction industry
is still largely inefficient, especially regarding contract management, as characterized by
lengthy payment delays, cost and time overruns, and poor project implementation.
There are many types of contract forms in the administration of civil engineering projects.
According to (Werku, 2016) the most common ones and those widely used in the
Ethiopian construction industry include the following format:
Re-Measurement form of Contract: In this form of contract, the contractor is paid
based on the amount of work executed, as compared to the prices detailed in the BOQ.
This is the most widely used form of contract in Ethiopia for both local and
international contracts.
BOT form of Contract: This is a form of contract where the contractor builds,
operates and turns over (BOT) the project to the Employer for a fee.
Turnkey Projects: This form of contract, also called EPC-contract (Engineer,
Procure, and Construct Contracts) is a form of contract where the contractor is
responsible for the design and building of the project. Such forms of contract are
particularly suitable for electro-mechanical contracts.
Lump Sum form of Contract: In this form of contract, the contractor agrees to do the
job for a fixed sum. In this case the contractor is responsible for the preparation of all
details.
2
According to Glazov, (2009) stated as building projects often cost more and takes longer
than originally planned. Delays may occur for example because the contractor was
working inefficiently, which is its (Majid, 1997) own fault, or because the employer
instructed additional work, for which the contractor will be entitled to an additional
payment.
Failure to achieve: targeted time, budgeted cost and specified quality result in various
unexpected negative effects on the projects. Usually, when the projects are delayed, they
are either extended or accelerated the time and therefore, invite to the additional cost
(Hamzah, 2011).
According to Werku, (2016) elaborated as liquidated damages are not penalties, they are
pre-determined damages set at the time that a contract is entered into, based on a
calculation of the actual loss the client is likely to incur if the contractor fails to meet the
completion date.
According to FIDIC Red Book the basic Clause for the Contractor to claim an extension
of time is Clause 8.4. It is there to allow the Contractor to point out where he has been
delayed by reasons beyond his control.
There are two types of delay non-excusable delays and excusable delays. A non-excusable
delay is delay caused by the contractor or its suppliers, through no fault by the owner. The
contractor is generally not entitled to relief and must either make up the lost time through
acceleration or compensate the owner. Therefore, non-excusable delays usually result in
no additional money and no additional time being granted to the contractor (Ahmed,
2014).
Construction projects have tended to become more time-constrained and the ability to
deliver these projects on-time is an important element that should be given special
attention. The different building construction contracts signed between two contracting
parties may face many problems like claims coming from both sides (Chan, 2003).
3
Like many cases in building construction industry indicate, problems regarding to poor
management of claims especially related to prolongation cost claims, liquidated damages
and extension of time, this cases could take high percentage of the construction industry
problems because it directly affects the performance, quality, and cost of a project which
will also affect the future construction endeavors (Eggleston, 2009).
A contractor’s timely performance in the construction arena is of essential importance on
both public and private projects to an owner. When a contractor caused delay occurs, and
the project extends beyond the specified contract completion date, the owning agency
suffers damages associated with loss of revenue as well as additional administrative,
engineering and inspection costs (Samuel B. , 2014).
An EoT provision is inserted in a construction contract for the benefit of both the
employer and the contractor, its insertion is primarily for the advantage of the employer. If
there was no EoT provision, once the employer had caused delay to completion of the
works, it would no longer be able to reply on the liquidated damages provision in the
contract. In such circumstances, the contractor’s obligation would be to complete within a
reasonable time in all of the circumstances (Gibson, 2008).
Invariably an evaluation of extension of time (EoT) will be made based on the information
submitted by the contractor such as work program and architect’s instructions. Lack of
information of delay is one of the common mistakes by the contractor in the application of
EoT and this can lead to obstacles in prompt settlement of claims for EoT. (Christopher A.
Mair & Paul J. Ferak, 2017)
1.2. Problem Statement
A thesis conducted by Samuel S., (2015) out of 22 Bahir Dar University projects, 10
projects has claim extension of time and got approval for various reasons. The findings of
the research showed that, from 6,956 days of contract time of those projects which request
a time extension, 2,595 days of extension of time is approved, which is 37.3% from their
contract time. This means half of Bahir Dar University projects are extending their
completion time by an average of 37.3%, more than one -third of their contract time.
4
The findings of Samuel B., (2014) showed that; incomplete recording and documentation,
unclear estimation methods and contractual provision are the main problems in justifying
time delay and estimation of prolongation cost compensation. The practice of data
collection and documentation becomes a problem due to the lack of competent and
experienced professionals and lack of awareness.
This may lead to loss of capital as well as the loss of capital recovery to the client. The
contractor may also be faced with the difficulty of maintaining a workforce, repaying of
bank loans and collateral and others. Therefore, this thesis would rather go through
assessing the practice and implementation of prolongation cost claim, liquidated damage
and extension of time in building construction contracts on how it is currently and on how
it should be in the future.
1.3. Objectives and Research Questions
1.3.1. General Objective
The general objective of this study is to assess the practice and implementation of
Prolongation Cost Claim, Liquidated Damage and Extension of Time in terms of legal and
contractual regulations from the sides of both local and international conditions of contract
and their implication on Building construction contracts.
1.3.2. Specific Objectives
To show the types of contractor’s cost claims related to project prolongation.
To assess the implementation of liquidated damage clauses in Bahir Dar University
Building Projects.
To point out the major reasons for project delay that could justify the extension of
time.
To come up with conclusions and offer recommendations to encounter the problems
related to implementation of liquidated damage, prolongation cost claims and
extension of time in BDU projects.
5
1.3.3. Research Questions
What are the types of contractor’s cost claims related to project Prolongation?
Is the Liquidated Damage clause implemented in Bahir Dar University Projects?
Are there major reasons for project delay that could justify the Extension of Time?
1.4. Scope and Limitation of the Study
This thesis limited to assessing the practice and implementation of Prolongation Cost
Claims, Liquidated Damage and Extension of Time in Bahir Dar University Building
Construction contracts with regard to identifying the procedures of enforcing contractual
liability to the respective parties involved in the contract.
Thus the scope of this paper specifically focuses on practice and implementation of
Prolongation Cost Claim, Liquidated Damage and Extension of Time issues in Bahir Dar
University building construction projects through taking a Case Study approach.
The major limitation of this study was it focused on only Bahir Dar University Building
Projects and the outputs of this thesis for those projects only, the thesis focused only on
this projects due to good documentation practices in this projects this may help the
researcher collect in data’s and information easily.
1.5. Significance of the Study
This study will have the following benefits:
It may help for contractor’s to have knowledge about how to claim prolongation cost
by suggesting the types of contractor’s cost claims during project prolongation.
With this study, the contractor could indeed benefit from this study’s outcome about
the improvement of the preparation for EoT application in order to speed up the
evaluation of the architect to establish contractor’s entitlement for EoT and to avoid
disputes about contractor’s entitlement for EoT.
It may also help for construction consultants how an extension of time is given
according to the construction contract and according to the conditions of contracts.
It may also give for owners the major reasons for project delay related with intended
completion time considering before construction bid floats by reduction of late
instructions and fix possession of site problems.
6
1.6. Methodology
Similar questionnaire was administered to professionals in client, consultant and
contractor organizations in contract administration roles, to explore their experiences in
the assessment of practice and implementation of prolongation cost claims, liquidated
damage and extension of time in building construction contracts.
Data for this research was collected through a questionnaire survey and documentation
review data collecting methods, targeting construction professionals practicing with
construction public client (Bahir Dar University), consultant and contractor organizations
who are actively participating in Bahir Dar University building construction projects.
1.7. Organization of the Study
This thesis consists of 5 chapters followed by an overall introduction. The second chapter
reviews relevant literature and provides a theoretical rational for the study. The third
chapter is on methodology where participants of the study, instruments of data collection
and analysis employed in this study are discussed. The fourth chapter contains the main
study data analysis, findings and discussions of results. The last chapter of this study
provides the summary, conclusions and recommendations.
7
CHAPTER TWO
LITERATURE REVIEW
2.1. Concepts of Building Project Delay
Delay can be defined as a time overrun or extension of time to complete the project.
Therefore delay is a situation when the actual progress of a construction project is slower
than the planned schedule or late completion of the projects. Failure to achieve: targeted
time, budgeted cost and specified quality result in various unexpected negative effects on
the projects. Usually, when the projects are delayed, they are either extended or
accelerated the time and therefore, invite to the additional cost ( P. J. Keane & A.
F.Caletka, 2008).
Construction delay is a major problem facing the construction industry. In most
construction projects, there are delays and their impact level varies from project to project
ranging from a few days to years. It is generally understood that the construction delay is
the most critical factors affecting to deliver the project in time, within budget, and
expected quality. It can be found rarely that a project was completed within the specified
time ( P. J. Keane & A. F.Caletka, 2008).
According to Endale, (2016) ten major causes of delay in the construction of 40/60 saving
houses project were late material supply, financial difficulties faced by the contractor,
problem of electric supply, problem of water supply, equipment unavailability, delayed
payments to contractors, poor site management, ineffective planning and scheduling, late
design review and approval, and slowness in decision making process.
2.1.1. Types of Project Delays
Not all delays that affect the critical path are grounds for a time extension or added
compensation for the contractor, of course. Whether the contractor will be entitled to
additional time or compensation for a critical path delay depends on which party is
responsible for creating the delaying event, or has otherwise taken responsibility for it
under the terms of the contract.
According to the report of Wesley C. Zech et.al (2008), construction delays are
categorized as: excusable, compensable and/or non-compensable and non-excusable.
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In addition Hamzah ,(2011) stated types of project delays in figure 2-1:
Figure 2-1: Types of Project Delay
(Source: (Hamzah, 2011))
A. Excusable Delay
An excusable delay is defined as the delay caused by factors beyond the control of the
contractor or owner. Delays caused due to severe weather, labor disputes, acts of God,
war, and so forth are classified as excusable delays since these delays excuse the
contractor from meeting a contract completion date. Thus, in the event of an excusable
delay, additional time is granted to the contractor. In Raiha (2015) this condition the
contractor may claim for extension of time only.
"Excusable Delay" means any delay of the completion of the Project beyond the
expiration of the Contract time caused by conditions beyond the control and without the
fault or negligence of the Contractor such as strikes, embargoes, fire, unavoidable
casualties, unusual delays in transportation, national emergency, and stormy and inclement
weather conditions in which the work cannot continue. The financial inability of the
Contractor or any subcontractor and default of any subcontractor, without limitation, shall
not be deemed conditions beyond the Contractor's control. An Excusable Delay may
entitle the Contractor to an adjustment in the Contract time (Paul W. Taylor et. al, 2011).
B. Compensable and Non-compensable Delay
A compensable delay is a delay caused by the owner or its representative in which
additional time and costs should be granted to the contractor to complete the project.
Types of Delay
Non-compensable Compensable
Excusable Delay
Non- Excusable
Delay
Concurrent Delay
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In this regard, the contractor may claim both the extension of time and the additional cost
he incurred. Paul W. Taylor et. al, (2011), defined in another expression as "Compensable
Delay" means any delay of the completion of the work beyond the expiration date of the
Contract time caused by the gross negligence or willful acts of the City, and which delay
is unreasonable under the circumstances involved, and not within the contemplation of the
parties. A Compensable Delay may entitle the Contractor to an extension of the Contract
time and/or Contract price. Except as provided herein, the Contractor shall have no claim
for damage or compensation for any delay, interruption, hindrance, or disruption.
Also Allen, (2012) defined Compensation delay as events that entitle the contractor to an
extension of time and to prolongation costs flowing from that event.
In a compensable delay, the owner is responsible for both the time and cost effect of the
delay. The contractor may claim the owner interfered with the work, did not deliver
owner-purchased equipment or supplies on site as promised, or that the owner’s actions or
inaction caused other delays. An owner cannot contract out of its obligation to pay for
compensable delay, although it may be able to limit its liability for such delays (Shaikh,
2009).
Non-compensable delays are caused by third party or force majeure. Contractor is
normally entitled to a time extension but no compensation for delay damages. Examples
include an official prohibition preventing the performance of the contract, a natural
catastrophe such as an earthquake, lightning or flood, international or civil war and the
death or a serious accident or unexpected serious illness of the contractor (Endale, 2016).
As Shaikh, (2009) further discussed with the issue of change order by the client is the
most common factor that is responsible for causing a compensable delay to a project. The
issuance of the change order affects the work that has been already done.
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C. Non-Excusable Delay
A non-excusable delay is caused by the contractor or its subcontractor that affects the
project completion and additional time is not granted by the owner. At this event, the
client can claim for liquidated damage from the contractor or he will terminate the
contract. In another way, this is an event which is defined as events that do not entitle the
contractor to either time or money Allen ,(2012) in addition to Allen, Paul W. Taylor et.
Al (2011) "Non-excusable Delay" means any delay of the completion of the Project
beyond the expressed as expiration of the Contract time resulting from causes other than
those listed above. A Non-excusable Delay shall not entitle the Contractor to an extension
of the Contract time or an adjustment of the Contract price.
As Hamzah, (2011) stated non-excusable delay is a delay caused by the contractor or its
suppliers, through no fault by the owner. The contractor is generally not entitled to relief
and must either make up the lost time through acceleration or compensate the owner.
Therefore, non-excusable delays usually result in no additional money and no additional
time is granted to the contractor.
Any delay to the project which is solely due to the contractor is regarded as a non-
excusable delay. It becomes the responsibility of the contractor and entirely his risk for the
delay and the owner is entitled to claim any delays to the project in line with the terms and
conditions as stipulated in the contract (Shaikh, 2009).
2.1.2. Effect of Project Delay
In the process of determining the effect of a delay on the Project, the analyst must
determine whether the delay is critical or noncritical. The analyst must also assess if
delays are concurrent. All delays that are identified in the analysis will be either excusable
or non-excusable. Delays can be further categorized into compensable or non-
compensable delays ( Theodore, 2009).
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Generally, from the previous researches, the researcher found the following effects of
delays in construction projects and summarized in the table 2-1.
Table 2-1: Effects of Project Delay
1. Effects of project delay Effects
Time overrun
Budget overrun
Poor quality completed project
Bad Public Relations
Litigation
Disputes and claims
Total abandonment
2.1.3. Mitigation Measures of Project Delays
According to Majid, (1997) stated that delays can be minimized when their causes are
identified. Identification of the factors that contributed to the causes of delays has been
studied by numerous researchers in several countries. Delay is a situation when the
contractor, consultant, and client jointly or severally contributed to the non-completion of
the project within the original or the stipulated or agreed contract period.
Based on several studies of project success factors and rectification of delays in the
construction project, a total of 9 methods have been identified in table 2-2:
Table 2-2: Mitigation Measures of Project Delays
N.o Methods
1 Frequent progress meeting
2 Use up-to-date technology utilization
3 Use proper and modern construction equipment
4 Use appropriate construction methods
5 Effective strategic planning
6 Proper material procurement
7 Accurate initial cost estimates
8 Clear information and communication channels
9 Frequent coordination between the parties involved
(Source: (Majid, 1997))
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2.2. Concepts of Liquidated Damage
Traditionally, litigation is the route to recovering costs incurred by a client due to late
completion. The inclusion of Liquidated Damage provisions in construction contracts,
therefore, avoids delays inherent in the use of litigation and its associated costs (M.M.
Tuuli, 2007).
According to the work of Theodore, (2009) the inclusion of a liquidated damages clause
does not affect Contractor bids. Contractors recognize that with or without a liquidated
damages clause, they are still liable for actual damages should they finish late. Therefore,
during Project performance, the liquidated damages clause may not be a motivating factor.
As Tecle Hagos & Mahelet Shewangzaw, (2009) pointed out that in our country Ethiopia,
whilst the penalty clause is regulated under the Civil Code Articles 1889- 1894, there is no
rule, directly or indirectly, regulating the doctrine of liquidated damages clauses. Recent
developments in Ethiopia, however, witness that in all major government construction
contracts, the liquidated damages clause is incorporated.
Therefore, in practice as the contractor is obliged to produce 10% of the contract price as a
performance bond to the Procuring Entity, then, for each day of delay on the part of the
contractor in completing the work, 0.1% of the contract price is meted out against the
contractor as a penalty until the penalty amounts to 10% of the contract price; that being
the Performance Bond. Thus, when the penalty amounts to 10% of the contract price, the
employer terminates the contract in addition to the appropriation of the performance bond
(Tecle Hagos & Mahelet Shewangzaw, 2009).
According to Glazov, (2009) mentioned that LDs are a daily monetary rate stipulated in a
contract to compensate the owning agency for additional costs incurred as a result of a
project extending beyond its completion date due to a non-excusable delay. LDs may be
based upon a reasonable forecast of a loss of actual damages to the owning agency if the
project is not completed on time. The purpose and intent of the LDs clause are to
compensate the owning agency for additional costs associated with the late completion.
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2.2.1. Construction Contract and Liquidated Damage
In construction contracts, a provision granting liquidated damages for each day's delay is
an appropriate means of inducing performance or of providing compensation when either
party fails to perform. Eggleston, (2009) the liquidated damages provision, by setting a
fixed rate of compensation, serves as an estimate of damages that would be sustained by
the owner regardless of the nature of a delay, rather than as a means of compensating for
the breach of a particular component of the contract.
In the construction industry, owners and contractors frequently attempt to apply liquidated
damages to project delays, stipulating a payment by the contractor or withholding by the
owner for each day after the scheduled completion date. (Tyler, 1994)
In other words FPPA, (2011) stated, liquidated damage as the compensation stated in the
contract as being payable by Contractor to the Public Body for failure to perform the
contract or part thereof within the periods under the contract, or as payable by Contractor
to the Public Body for any specific breach identified in the contract.
Regulating, in advance, the potential damages that either of the contracting party may
suffer, as the consequence of the other party’s failure to perform its contractual
obligations, is the order of the day in the construction industry. In Ethiopia, for example, it
is now fully being put in use in all government construction contracts. The Doctrine might
have made its entry into the Ethiopian Construction Laws via the FIDIC (Red Book) Form
(Tecle Hagos & Mahelet Shewangzaw, 2009).
In addition, Tecle Hagos & Mahelet Shewangzaw, (2009) further stated about liquidated
damage clauses were that the provision for liquidated damages excludes the employer’s
right to claim additional damages even if it can show that the damage it has actually
suffered exceeds the provision for liquidated damages in the contract.
In construction contracts, a provision granting liquidated damages for each day's delay is
an appropriate means of inducing performance or of providing compensation when either
party fails to perform. As long as the amount designated as liquidated damages is a
reasonable expression of the parties' intent at the time of the contract, the fact that no
actual damages are ultimately suffered by the parties is irrelevant (Eggleston, 2009).
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According to Glazov, (2009) given the number and variety of duties assigned to the
contractor, potential actual damages are incapable of being precisely ascertained at the
time the contract is made. The liquidated damages provision, by setting a fixed rate of
compensation, serves as an estimate of damages which would be sustained by the owner
regardless of the nature of a delay, rather than as a means of compensating for the breach
of a particular component of the contract.
2.2.2. Definition of Liquidated Damage
According to Kingsley, (2013) in all contracts, whether commercial or construction
contracts, breach often occurs due to failure of one contracting party to fulfill its
contractual obligations, and in law, the party, which commits a breach of contract, is
required to pay damages to the other party.
A. Definition of Liquidated Damage
As Richard, (2010) defined liquidated damage in the following ways:
A LDs provision is a stipulation in a contract for a fixed sum to be paid as damages for
breach of the contract.
A failure by the contractor to achieve practical or substantial completion in accordance
with the contract (as extended by extensions of time) and assuming that there has been
no prevention, would generally result in the contractor being obliged to pay LDs.
o A LDs sum has two essential elements: it is fixed by the contract and it is due for
payment by the defendant.
A typical LDs clause provides that if the contractor fails to complete by a date
stipulated in the contract, or any extended date, he shall pay or allow the employer to
deduct LDs at the rate of money per day or week for the period during which the
works are incomplete.
LDs are an agreed pre-estimate of loss and damage specified in the contract for each
day that the date of practical completion exceeds the date for practical completion.
B. LDs and Government Contracts
In his work Richard, (2010) stated as one of the tests for determining whether a LDs
clause is valid is whether it could be said that the amount specified in the clause is a
genuine pre-estimate of the loss flowing from the particular breach that triggers the clause.
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The courts apply this test at the time of contract formation so that it is necessary to be able
to show that some attempt was made to calculate the amount at the time of drafting the
contract.
The courts have responded to this problem by recognizing the difficulty and waiving the
genuine pre-estimate requirement in government contracts when it is impossible to make
such an estimate. This does not mean that the courts no longer regulate LDs clauses in
government contracts. The agreed damages must still not be unconscionable in amount.
But the genuine pre-estimate test will not be applied where it is impossible to apply (
Richard, 2010).
2.2.3. Purpose and Function of Liquidated Damage Clauses
A. Purpose of Liquidated Damage Clauses
It has suggested that LD provision is inserted in contracts to serve a number of purposes (
Richard, 2010):
It provides certainty to both parties concerning the measure of damages that will flow
in the event of a breach.
Provide an incentive to perform the contract in a timely manner.
Permit a contractor on a project that is running behind time to undertake a cost-benefit
analysis of whether it is more commercially beneficial to pay LDs or incur the
additional costs of accelerating the works in order to make up the lost time.
It simplifies the process of assessing damages for delay, without the necessity of
difficult proofs and the expense of establishing what actual loss has been incurred.
This is relevant to contracts, particularly construction contracts, where there may be
great difficulty in proving the extent of the actual loss incurred by reason of delay.
B. The Function of Liquidated Damage
Liquidated damages are therefore a reasonable pre-estimate of the loss the employer
anticipates he will suffer if the contractor completes late. Its advantage is that the
contractors know in advance the extent of risks they are taking and employers do not have
the expense and difficulty of proving their loss item by item (Eggleston, 2009).
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2.2.4. The Benefits of Liquidated Damages
Liquidated damages provision offer several benefits to the contracting parties, as well as
the legal system. The enforcement of liquidated damages saves the time of courts, juries,
parties, and witnesses, all while reducing the expense of litigation. Liquidated damages
provisions can add predictability by providing an agreed-upon damage amount for certain
types of breaches. They can promote a quicker, earlier resolution of a dispute since the
damages result has already been determined. The following are among the benefits of
liquidated damage provision.
A. Liquidated Damages Promote Efficiency
Liquidated damages promote efficiency by eliminating a party’s need to prove
compensatory damages after one party’s breach. The use of a liquidated damages
provision eliminates the time and expense of retaining experts and having to engage in
protracted legal proceedings to determine actual damages (Christopher A. Mair & Paul J.
Ferak, 2017).
B. Liquidated Damages Add Predictability
Parties to a contract have a vested interest in participating in a system that operates and
resolves disputes in a way that stakeholders may anticipate, understand, and predict based
on prior applications of the law. General consensus holds that more predictable courts
function to provide better balance and cohesion for the determination of rights, and
provisions like liquidated damages clauses have consistently affirmed the idea that parties
prefer more certainty over less certainty in business dealings (Christopher A. Mair & Paul
J. Ferak, 2017).
C. Liquidated Damages Promote Settlement
A liquidated damages provision may encourage an early settlement due to the mere
presence of the amount specified in the provision. The leverage created by a valid and
enforceable liquidated damages provision can cause disputes to settle that may otherwise
be litigated (Christopher A. Mair & Paul J. Ferak, 2017).
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2.2.5. The Enforcement of the LDs Clause
According to Kingsley, (2013) explained that not all liquidated damages clauses are
enforceable and added, cited that for liquidated damages clause to be enforceable it must
satisfy a three-part tests.
First, the parties must intend to liquidate (i.e., stipulate to the amount) the damages in
advance.
Second, the damages anticipated as a result of the contract breach (such as a
contractor’s delay) must be uncertain in amount or difficult to prove.
Third, the amount stipulated must be reasonable, that is to say, not greatly
disproportionate to the anticipated loss or injury.
As Tuuli et al. (2007) found out that, LDs are not serving their purpose in construction
contracts in Ghana. Clients have created situations that render LDs unenforceable. LD
amounts are also not genuine pre-estimates of expected loss to be incurred, as assumptions
and guesses rather than genuine calculations on a case-by-case basis are adopted in their
assessment.
This came up with the following as "criteria" or factors to consider when addressing
"liquidated damages" provisions: (Schmidt and Facundo, 2008) as cited in (Kingsley,
2013).
The use of the words "penalty" or "liquidated damages" in the contract is not
conclusive or determinative of whether it is, in fact, one or the other. The Court must
find out whether the payment stipulated is in truth a penalty or liquidated damages. In
other words, the parties' attempt to call it "liquidated damages" is not conclusive and
the Court can still determine that it is a penalty.
The essence of a "penalty" is a payment of money stipulated as against the offending
party; the essence of "liquidated damages" is a genuine covenanted pre-estimate of
damages to the innocent party. The key issue for the penalty and LD is the actual loss
incurred due to the breach by the offending party and further, whether it is fair and
reasonable.
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According to Christopher A. Mair & Paul J. Ferak, (2017) stated a liquidated damages
provision will be enforced if:
It appears that the parties intended to liquidate damages.
At the time of contracting, the number of damages specified was a reasonable estimate
of the presumed actual damages that would result from a breach.
At the time of contracting, it was difficult to ascertain the number of damages that
would result from a breach.
Thus, for the purpose of establishing each of these elements, it is important to draft the
agreement with keeping the following key considerations in mind (Christopher A. Mair &
Paul J. Ferak, 2017):
Language and Labels Can Matter: the simplest way to help demonstrate that the
liquidated damage provision is intended to be compensatory, rather than punitive, is to
explicitly state the intent in the clause itself.
Specify the Type of Breach to Which the Liquidated Damages Provision Applies:
including an explanation of the type(s) of breach that would give rise to the liquidated
damages provision helps convey the parties’ specific intent to utilize liquidated
damages for a particular breach and also ensure that liquidated damages are being used
only when determining damages would otherwise be difficult to do.
Choose Situations When Calculating Damages Would Be Difficult to do: courts will
enforce liquidated damages when it would be difficult to assess damages for a
particular breach. Likely candidates for enforceable provisions include those intended
to cover potential lost profits or other prospective damages that would be difficult to
determine based on the surrounding circumstances.
2.2.6. The Un-enforcement of the LDs Clauses
As Kingsley, (2013) mentioned in addition to being unenforceable as a penalty, liquidated
damages can also be void for uncertainty or unenforceable because they breach the
prevention principle. Void for uncertainty means, as the term suggests, that it is not
possible to determine how the liquidated damages provisions work. In those
circumstances, a court will void the liquidated damages provisions.
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If a Contractor completes a Project late and is assessed liquidated damages by the Owner,
it is possible that the assessment may be challenged. There are two basic approaches that a
Contractor may use to overcome the assessment of the liquidated damages. First, he may
attack the propriety of the assessment by disclaiming responsibility for the delay. Second,
the Contractor may claim that the specified amount of the liquidated damages is excessive
and, consequently, acts as more of a penalty than a damages compensation ( Theodore,
2009).
2.2.7. Types of Delay Damages
Delay damages are summarized in table 2-4, although not all may be recoverable. He did a
thorough review of these costs as followed by various kinds of damages to which
Contractors may be entitled to excusable and compensable delays.
Table 2-3: Project Delay Damages
Extended and increased field
Costs
These damages include the additional labor, material,
and equipment costs resulting from project delays. These
costs are typically quantified and supported by actual
measurements of increased units and/or rates.
Home office overhead
When a project is delayed, the Contractor may
experience un-absorbed and un-recovered over-head
costs. Generally, the Contactor’s home office costs that
support all projects are allocated to the delayed project
and recovered based on a daily rate applied to
compensable days of delay.
Inefficiency or lost
Productivity Costs
Depending on the nature of the delay, a contractor may
also experience some measure of inefficiency. The
resulting increased labor and equipment costs maybe
included within the damage claim.
Acceleration Costs
When the labor force is accelerated to mitigate delays,
the resulting increased labor, and equipment costs may
also be included within the damage claim.
Other Categories of Delay
Damages
A delay claim may include other related damages such as
non-critical Delays, legal and Consulting Costs, lost
Profits, lost opportunity Costs/Bonding impairment,
Constructive acceleration, interest, and other impacts.
(Source: ( Theodore, 2009))
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A. Extended Field Costs
Depending on the Project-specific circumstances, when a Project encounters a delay, the
Contractor would typically retain its supervisory team at the job site, personnel such as the
Project Manager, Project Engineer. These personnel represent a direct labor cost to the
contracting firm ( Theodore, 2009). He further discussed how to calculate the delay-
related direct labor cost to maintain these people on-site, add the daily cost of each staff
member’s salary, including burden, and then multiply that sum by the number of days of
excusable and compensable delay.
Idle Labor
Another category of delay-related labor costs that might arise is idle labor. If a project is
delayed or suspended, the Contractor’s workers may be at the Project site but may be
unable to productively work. For potential recovery of this type of cost, the Project daily
reports need to show that the Contractor’s workers were on the site but were unable to
perform their work. The Owner would appropriately question why the Contractor was
unable or unwilling to shift those workers to other tasks or other jobs or lay them off.
Escalation of Labor Costs
Typically, the contractor is responsible for the risk related to fluctuations in labor,
equipment, and material costs during the project. However, if a contractor’s operation is
delayed by the compensable delay from one labor agreement period to another, causing
the contractor to pay a higher hourly wage rate, the contractor may be entitled to
additional compensation (Nagata, 2013).
Equipment Costs
A Contractor’s equipment costs on a Project can also be affected by a delay. For example,
delays may cause the equipment to be idle. The amount of damages that can be claimed
for idle equipment depends on the Contract provisions. In some cases, the Contract may
address idle or standby equipment and allow only a reduced rate or no compensation at all.
If the contract is silent on this issue, the Contractor would likely claim damages at the full
rates of the equipment during the idle time.
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Material Costs
The most common added material cost caused by a delay is price escalation. Because of
the delay, the Contractor is forced to buy materials to be incorporated into the work in a
period when the price has increased. The calculation of escalation cost for materials can be
performed in the same manner as that for the escalation of labor costs. A comparison must
be made between the quantity of each material that would have been purchased in the
original schedule and the quantity of each material purchased later under the delayed
schedule.
Storage Costs
According to Nagata, (2013) further discussed extended field overhead costs (also called
field office or Jobsite overhead costs) are, by definition, costs that increase due to a critical
and compensable delay.
B. Effects of Delays on Home Office Costs
A Contractor typically includes in its bid price for a particular Project a percentage
markup through which it will recover some portion of its home office overhead. If this
Project were to then experience a delay, Project revenues may be earned over a longer
period of time, disrupting the basis under which the Contractor originally allocated its
home office overhead costs ( Theodore, 2009).
Generally, home office overhead costs in a delay situation can represent a significant
percentage of the overall delay damages. Owners should carefully consider this fact in
drafting their construction contracts. Some Owners prevent problems in this area by
defining in the Contract the allowable damages for delays, including a computation for
home office overhead, if any ( Theodore, 2009).
Summary of Home Office Overhead Cost Calculation
Home Office Overhead is also well-known, but not well-understood delay damage and
like an extended field, overhead is only caused by a critical project delay. Typically, the
contractor’s home office overhead costs are apportioned and assigned to the contractor’s
projects. Said another way, each project has to absorb its fair share of the contractor’s
home office overhead costs (Nagata, 2013).
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As Nagata, (2013) differentiated the terms home office overhead and extended field
overhead are often used interchangeably, they are not the same. When a project
experiences a critical and compensable delay, the project does not incur additional home
office overhead costs, as it would additional field office overhead costs.
C. Inefficiency Caused by Delay
The best way to define inefficiency is to start with a definition of efficiency. Efficiency is
a measure of units of work performed per unit of resources consumed to perform that
work. Inefficiency (also referred to as loss of efficiency or lost productivity) is a relative
measurement. An operation is inefficient when it consumes more units of resources to
perform a unit of work than should have been consumed or than were consumed by the
same type of activity performed at another time ( Theodore, 2009).
2.2.8. Assessment of Liquidated Damage
Assessment of liquidated damages is when Work has not been completed by the specified
Completion Date, the Engineer will charge liquidated damages, at the rate stated in the
Contract, for every calendar day that the Work remains incomplete after the specified
Completion Date, except (Eggleston, 2009):
On days where the Contract special provisions require the Contractor to cease construction
operations at 4:00 p.m. or earlier, only ½ day will be charged.
If the Contractor elects not to work on any one of the following days: Saturday, Sunday
and statutory holiday.
Liquidated Damages will be assessed on Saturday, Sunday or statutory holiday if the
Contractor chooses to work on that day.
2.2.9. Difference between Liquidated Damages and Penalty
The law of penalties arises where a contract stipulates that on breach the contract breaker
must pay an agreed sum which exceeds or is out of all proportion to the likely actual loss
caused by the breach. A penalty clause is a clause which provides for payment of a sum of
money by one party to another in the event of a breach of contract, the sum being designed
to secure the performance of the contract rather than to compensate the payee for loss
occasioned by the breach ( Richard, 2010).
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Whereas, a LD provision has to be a genuine pre-estimate of loss and damage arising from
delay in the completion of the contract and assessed at the time of entry into the contract.
If the amount is not a genuine pre-estimate of the damage likely to be caused by the
breach, then it is regarded as a penalty and is not recoverable ( Richard, 2010).
LD's is a sum agreed by the Employer and the Contractor in advance as the amount to be
paid by the Contractor as damages if the Contractor breaches the contract by failing to
complete the work in time. A provision for LD's is enforceable if the amount fixed is a
genuine pre-estimate, judged at the time the contract is entered into, of the loss likely to
arise from the anticipated breach. The Employer does not need to prove actual damages
but LDs are not enforceable if imposed as a penalty (Chan, 2003).
2.2.10. Determination of Liquidated Damages Amount
A study by Richard, (2010) recommended four generic principals in measuring liquidated
damages. Firstly, the losses claimed by the client must be at a reasonable accuracy.
Secondly, the contractor's estimate was realistic. Thirdly, the contractors' actual cost was
reasonable. Fourthly, the contractor was not responsible for the increased expense.
According to Chan, (2003) pointed out if it is possible to carry out a cost-benefit analysis,
LD's shall be calculated using the daily rate of economic benefit likely to be generated by
the project after completion and those additional costs due to the delay in completion of
the Works if any. Where such analysis is not possible, as is usually the case in public
sector construction contracts, an amount being a genuine pre-estimate of the likely loss to
the Employer may be stipulated as the LD.
Chan further discussed the concept of calculating liquidated damage as, in estimating the
likely loss to the Employer, there is a widely accepted method which includes the
following components:
Loss of revenue or interest on the capital invested in the project;
Supervisory costs during the delay period;
The additional sum payable to the Contractor in respect of fluctuations in the cost of
labor and materials; and
Any special damages were specific to a particular project.
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A. Cost Elements for Liquidated Damage
The cost elements in liquidated damages can also inform contractors whether the
liquidated damages are an extravagant amount causing the provision of liquidated
damages to be void (Eggleston, 2009). The cost elements that will be affected when there
is a delay in a construction project. These cost elements are further categorized into four
themes which are capital expenditure, loss of profit, human resource, and overhead.
Figure 2-2: Cost Elements for Liquidated Damage
(Source: (Eggleston, 2009))
In addition to the above an Owner should consider the following items when preparing an
estimate of liquidated damages ( Theodore, 2009): cost for project inspection, costs for
continued design services, costs for the Owner’s staff, costs for maintaining current
facilities, costs for additional rentals, costs for additional storage, lost revenues, costs to
the public for not having the facility, additional moving expense, escalation costs and
financing cost.
• Alternative Facilities
• Statutory
• Miscelleneous
• Additional follow on cost, follow on work
• Preparation of claims
•Professional fee
•Administrative
•Supervision
•Loss of use
•Production/productivity
•Third party
•Business Disruption
•Social cost
•Financing Interest
•Tax
•Investment incentive
•Transaction cost
Capital Expenditure
Loss of Profit
OverheadHuman
Resource
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2.2.11. Provisions of Conditions of Contract
2.2.11.1. PPA, 2006 Conditions of Contract
Clause, 49 Liquidated Damages
o Sub-clause 49.1 stated that the Contractor shall pay liquidated damages to the
Employer at the rate per day stated in the Special Conditions of Contract for each
day that the Completion Date is later than the Intended Completion Date…… the
Employer may deduct liquidated damages from payments due to the Contractor.
o Sub-clause 49.2 mentioned that, if the Intended Completion Date is extended after
liquidated damages have been paid, the Engineer shall correct any overpayment of
liquidated damages by the Contractor by adjusting the next payment certificate.
2.2.11.2. FPPA, 2011 Conditions of Contract
Under Clause, 27 Liquidated Damages
Sub-clause 27.1 stated, except as provided under GCC Clause 18 (Events of Force
Majeure), if the Contractor fails to carry out any or all of the Works within the period
specified in the Contract, the Public Body may deduct from the Contract Price, as
liquidated damages the following:
A. A penalty of 0.1% or 1/1000 of the value of undelivered Service for each day of delay
until actual delivery or performance,
B. The cumulative penalty to be paid by the Contractor shall not exceed 10% of the
contract price.
Under Clause, 78 Delays in Implementation of Tasks
o Sub-clause, 78.1 mentioned if the Contractor fails to complete the works the
Public Body shall, be entitled to liquidated damages for every day or part thereof
which extended Intended Completion Date under GCC Clause 72 (Period of
Execution of Works) and the actual date of completion, at the rate and up to the
maximum amount specified in the GCC Clause 27 (liquidated damage). If the
works have been the subject of partial acceptance in accordance with GCC Clause
86 (partial acceptance), the liquidated damages specified in the GCC Clause 27
(liquidated damage) may be reduced in the proportion.
26
2.3. Concepts of Prolongation Cost Claim
2.3.1. Introduction
According to Hasweh, (2016) discussed construction contracts provide an unlimited basis
for claims, which the contractor can claim for different causes of loss. In practice,
Prolongation Claim is the claim associated with the contractor entitlement for extension of
time (EoT). However, the contractor’s entitlement for EoT will not by default entitle him
to prolongation cost.
As Raiha, (2015) discussed the concept of prolongation cost claim as, a contractor’s
entitlement to payment for works including variations and may also entitle to claim for
additional time and money. There is no legal significance of the term prolongation claim.
It is not a type of claim described by the law and is often called a delay claim. Many times
it is also known as disruption claim.
The meaning of a claim for prolongation is the recovery of the actual loss that the
contractor incurs as a result of the employer’s delay event which causes a delay in the
project completion date. Certainly, the contractor has to prove EoT entitlement prior the
submission of the prolongation claim since the pieces of evidence that entitles the
contractor for EoT are almost similar to the evidence required to claim for prolongation
cost but however, the quantification of any losses are conducted as separate exercise
(David, 2005).
It is common practice for decisions and awards on extensions of time to be made and
issued before considering prolongation claims. Once an extension of time has been
awarded, the intention of most construction contracts is for the contractor to be reimbursed
for the additional costs which have resulted from the employer-responsible delays
(Gibson, 2008).
In addition, David, (2005) further discussed contract claims as they must be founded on
facts and these facts must be substantiated by the contractor. Merely because a contractor
is losing money on a particular contract does not mean that he is entitled to look to the
employer for reimbursement. He must be able to establish that the loss results directly
from some act or default of the employer or those for whom he is responsible in law, or
else is referable to some express term of the contract entitling him to reimbursement.
27
2.3.2. Time-Related Cost (Prolongation Cost)
Extensions of time carry with them additional costs to the contractor associated with the
increase in the length of the contract period. The extra costs could arise from maintaining
the contractor’s site facilities, providing facilities to the Engineer, extended use of
equipment which might be required for another project, off-site and head office costs,
finance and insurance costs and other potential related costs. These all are together named
prolongation costs (Samuel B. , 2014).
According to Gibson (2008), in order to justify entitlement to damages for breach of
contract, the injured party will have to prove that:
The breach actually causes loss;
The particular loss is recognized as giving entitlement to compensation;
The loss is not too remote;
The quantification of compensatory damages is fair and reasonable under the
circumstances.
The burden of proving that the breach has actually caused loss rests with the claimant, and
he will need to produce contemporary records in support of the claim. The quantification
of damages must be based upon factual records and not upon theoretical calculations.
2.3.3. Common Heads of Loss
According to David ,(2005) the basic principle to be borne in mind is that, subject to the
restrictions of directness and foreseeability, the contractor should be put into the financial
position which he would have been in had the delay or disruption not occurred. If this
general principle is borne in mind, there should be no difficulty in judging or putting
forward other heads of loss where the particular circumstances permit. The contractor
should recover his actual costs if he has the records to substantiate them in preference to
his tender costs, even though his tender costs are part of his tendered and accepted price.
28
The following are common heads of loss as stated in the work of (David, 2005):
A. On-Site Establishment Costs
These are often called site overheads or commonly simply ‘preliminaries’ because the
prices are normally found in the preliminaries section of the bills of quantities. The bills of
quantities prices are not normally to be used to calculate the loss and/or expense. Actual
costs should be used. On-site establishment costs are perhaps the easiest head of claim to
establish because the data should be readily available once the period of delay has been
settled (David, 2005).
B. Head Office Overheads
According to David, (2005) a contractor’s overheads are commonly taken to be recovered
out of the income from his business as a whole and ordinarily where completion of one
contract is delayed the contractor claims to have suffered a loss arising from the
diminution of his income from the job and hence the turnover of his business.
Even if he hasn’t so recovered, the amount is ‘reimbursable’ under the valuation of
variation clause and, therefore, can’t be recovered under the loss and/or expense clause
which covers only loss and/or expense for which he wouldn’t be reimbursed by a payment
under any other provision (David, 2005).
2.3.4. Common Heads of Prolongation Claim
According to Allen, (2012) identified that various heads of claim which may become
reimbursable: (a) Extended and/or increased preliminaries; (b) Reduced labor outputs; (c)
Extra Waste or Abortive Purchase of Materials; (d) Inflation; (e) Increased Head Office
Overheads; (f) Loss of Profit and, (g) Finance Charges. He stated that the following items
which are frequently claimed by contractors are generally not admissible: (h) Cost of
accelerating the works unless specifically required by the employer and (i) Cost of
Preparing a Claim.
The EoT makes it more likely to claim for additional payment for the loss and expenses
occurred to the contractor for the following head of claims (Hasweh, 2016): interest and
financing charges, overheads, loss of profit, cost of claim preparation and disruption claim
(for critical delays).
29
A. Interest and Financing Charges
According to Gibson, (2008) a contractor’s prolongation, or loss and expense, claim will
invariably include a sum in respect of finance charges, the argument is that they have been
‘underpaid’ for considerable periods of time, which has necessitated borrowing to make
up the shortfall or if money has been taken off the deposit, there has been a subsequent
loss of interest. It is clear from established case law that contractors are entitled to finance
charges as part of their prolongation, or loss and expense, claims. However, the contractor
will still need to show that the loss was actually suffered.
Interest claim
The claim for interest is the most common head of claim for prolongation cost in
construction contracts. The interest as a remedy to recover the damages for the delay can
be divided based on its cause and effect into two main categories Hasweh, (2016).
Financing Charges
The contractor may incur additional expenditure to maintain the contractor’s obligations in
progress. Indeed, additional funds are required to fill the obligatory gap Hasweh, (2016).
Therefore, the cost of performance will increase. In practice, the contractors are more
reliant on the outsourced funds for their business development. Thus, the contractor may
incur the loss of interest for the borrowed money. The financing charges claim can be
ahead of prolongation claim at the contractor’s statement of claim.
B. Overheads
According to Hasweh, (2016) stated as the Overheads or in other terms has been referred
to as Management Charges are commonly claimed by the contractor as head of
prolongation cost claim. It is more suitable and also preferable to contractually pre-agree
the mechanism of quantifying the overheads under the contract terms.
Loss of Opportunity
The loss of opportunity are the loss of making use of the overheads at another secured
project due to the contractor’s delay in the current project, subsequently, the loss of
contribution of head-office overheads has to be recovered by the current delayed project.
30
The contractor’s ability to prove the loss of opportunity differs based on the company size.
Small construction companies are more likely to be able to prove that the delay in a
specific project has played a significant role not to be engaged in another secured project
especially when the company’s strategy is to carry out one project at the time (Hasweh,
2016).
Extra Cost Claim (Wasted Management Time and On-site Overheads)
As Hasweh, (2016) mentioned the principle of extra cost has turned the head-office
overheads and on-site claims to different aspect, the contractor herein don’t claim for
head-office contribution for loss of opportunity at another secured project but however has
focused on claiming the actual incurred loss for the additional time spent.
C. Loss of Profit
The loss of opportunity can be claimed for an over-heads contribution at another secured
project despite the profitability factor of that project. Meanwhile, the claim for loss of
profit has to be reasonably related to the profitability of that opportunity. In other words,
the contractor has to prove not only the employer’s breach of contract but also has to
prove that the employer’s breach has prevented him from earning income or likely to earn
income from the opportunity which the contractor would earn if the breach didn’t happen
(Hasweh, 2016).
D. Cost of Claim Preparation
According to Hasweh, (2016) the cost of producing a claim is not recoverable especially
when the contractor is merely acting in accordance with the contract requirements.
Therefore, the contractor requires an express contract provision to be entitled to recover
the incurred cost. However, the requests for additional substantiation by the employer
beyond the contract requirements and common practice shall be the basis for the
contractor’s entitlement to recover the cost of further preparation, either for managerial
time or for an external consultant. Nevertheless, the contractor will not recover the
additional cost incurred due to the contractor’s resubmission of a poorly presented claim.
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E. Disruption Claim
As Hasweh, (2016) elaborated as the disruption claim is basically an individual claim but
however can be also claimed within the prolongation cost. Indeed, the disruption claim
entitlement reasons are merely the same as for prolongation claim.
2.3.5. Estimating Prolongation Cost
Generally, the claim for additional payment in the case of prolongation may be
categorized as follows (Hewitt, 2016):
Site‐establishment costs including site staff, site establishment, transport, plant,
equipment and the necessary running and maintenance of such items.
Contractual costs such as insurances and performance guarantees
Head‐office overheads and profit
Finance costs
As Theodore, (2009) concluded that the calculation of delay damages is as much an art as
a science. So, the appropriate damage calculations are project-specific and situation-
specific.
The starting point for the analysis of a prolongation claim should be ‘with respect to what
period is the contractor entitled to further payment?’ What is equally important not only
concerns how many weeks the contractor is entitled to be paid for but which weeks. This
is because the amount of his entitlement will depend on his actual costs, particularly his
time-related preliminary costs which will vary throughout the project (Gibson, 2008).
The fact that damages can’t be assessed with certainty does not relieve the wrongdoer of
paying damages. Where the precise evidence is obtainable the certifier, contract
administrator, arbitrator, adjudicator or court naturally expects to have it; but where it is
not, the certifier or court must do the best it can (Gibson, 2008).
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2.3.6. Provisions for Prolongation Cost Claims under PPA and FIDIC Conditions of
Contract
Most of the standard form of construction contracts currently in use contains detailed
provisions under which the contractor can claim against the employer for any losses
suffered if the work is disrupted due to certain specified causes. These provisions often
bear some resemblance to those under which an extension of time may be claimed.
2.3.6.1. Prolongation Cost Claim Provisions under PPA, 2006 Form of Contract
Table 2-4: Compensation Clauses in PPA, 2006 Conditions of Contract
Clause Title Contractor’s Entitlement
40 Payment for variations
40.4 If the Engineer decides that the urgency of varying the work would prevent a
quotation being given and considered without delaying the work, no quotation
shall be given and the Variation shall be treated as a Compensation Event.
44 Compensation Events The contractor is Entitled to both Time and Money
44.1 The following shall be Compensation Events:
a) The Employer does not give access to a part of the Site by the Site
Possession Date stated in the Contractor’s approved work program.
The Engineer instructs the Contractor to uncover or to carry out additional
tests upon work, which is then found to have no Defects.
b) The Engineer unreasonably does not approve a subcontract to be let.
c) Ground conditions are substantially more adverse than could reasonably
have been assumed before issuance of the Letter of Acceptance from the
information issued to bidders (including the Site Investigation Reports
referred to in GCC 14.1).
d) The Engineer gives instruction for dealing with an unforeseen condition,
caused by the Employer, or additional work required for safety or other
reasons.
e) The Engineer unreasonably delays issuing a Certificate of Completion.
f) Other Compensation Events described in the Special Conditions of
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Contract or determined by the Engineer shall apply.
44.2 “If a Compensation Event would cause additional cost or would prevent the work
being completed before the Intended Completion Date, the Contract Price shall be
increased and/or the Intended Completion Date shall be extended. The Engineer
shall decide whether and by how much the Contract Price shall be increased and
whether and by how much the Intended Completion Date shall be extended.”
2.3.6.2. Prolongation Cost Claim Provisions under FPPA, 2011Form of Contract
Under Clause 20, Suspension
Sub-clause, 20.4 stated the Engineer, after consultation with the Public Body and the
Contractor shall determine such extra payment and/or extension of the period of
performance to be made to the Contractor in respect of such claim as shall, in the opinion
of the Engineer, be fair and reasonable.
Under Clause 44, Exceptional Risks
Sub-clause, 44.1 mentioned if during the execution of the works the Contractor encounters
…… if the Contractor is of the opinion that additional costs will be incurred and/or an
extension of the period of implementation of the tasks will be necessary.
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2.4. Concepts of Extension of Time
Extension of Time is one of the most important aspects in the management of
Construction Contracts. While Contractors try to obtain an Extension of Time to get relief
from paying Liquidated Damages, Clients (Employers) may prefer the completion within
the original time frame. Due to this conflicting nature, the role of the Engineer as an
independent assessor of Extension of Time becomes highly important. Such assessment is
a difficult task as a multitude of causes can lead to delay in completion but the actual
entitlement of Extension of Time is confined to only a few causes (Eggleston, 2009).
2.4.1. Purpose of Extension of Time
According to Eggleston, (2009) confirmed that, the purpose of an Extension of Time
clause in a construction contract is to deal with excusable and compensable delays
suffered by the contractor. The clause is designed to discharge the Contractor from his
liability for Liquidated Damages during that extended period and to compensate him for
costs associated with the delay and for which he would not have been in a position to
allow for at the onset.
The benefit to the contractor of an EoT is to relieve the contractor of liability for damages
for delay (usually liquidated damages) for any period prior to the extended contract
completion date and allows for reprogramming the works to completion the benefit of an
EoT for the employer is that it establishes a new contract completion date, prevents time
for completion of the works becoming ‘at large’ and allows for coordination / planning of
its own activities. (Gibson, 2008)
As Juan Rodriguez, (2017) discussed to obtain an Extension of Time; the Contractor must
first establish that a delay was in fact caused that inhibited the completion date by a
relevant event. The difference between the period in which he would have completed
earlier and the eventual completion date is his claimed extension and if proven; it should
reduce his liquidated damages to the same extent.
35
Extension of Time clauses, therefore, has various purposes (Eggleston, 2009):
To retain a defined time for completion;
To preserve the employer’s right to liquidated damages against acts of prevention;
To give the contractor relief from his strict duty to complete on time in respect of
delays caused by designated neutral events.
2.4.3. Evaluating Extension of Time Claims
To avoid unnecessary disputes arising, from Extension of Time claims it is important to
understand common issues like contractual procedures of preparing, submitting and
assessing Extension of Time claims; the treatment of float and of concurrent delays; the
importance of construction programs and the mechanism of updating programs; and
keeping of accurate and contemporaneous records are very important issues (Juan
Rodriguez, 2017).
2.4.4. Information that needs to be considered in Evaluating Extension of Time
Application
Upon receipt of the contractor’s notice, the architect is to consider making an EoT
independently in the light of his knowledge of the progress of the works and of other
matters affecting or likely to affect its progress. Amongst the sources of information
which he may utilize to monitor and assess the delay are: the contractor’s notice of delay
and particulars (application letter), the works program as-built works, program records of
when operations and activities actually began and finished, site progress meeting minutes
and records, contractor’s day-work sheet site staff reports and diaries contractor’s progress
reports contractor’s method statements and working cycles (Gibson, 2008).
2.4.4.1. Construction and Progress Records
There are a multitude of different types of records kept on construction projects, which are
documented with varying degrees of rigor depending on who is responsible for their
completion, as well as being dependent on project management effectiveness from one
project to the next (Eggleston, 2009).
36
Progress records are commonly kept by the contractor and the architect independently. A
master program together with subsequent updates, a comparison of master program with
actual records, Site diaries in a standard format, a drawing register kept up to date as new
drawings are issued and incorporating issue dates, a weekly log of activities commenced
and completed, a weekly log of those areas which were considered problematic and
Progress meetings (Juan Rodriguez, 2017).
2.4.5. Common Mistakes by the Contractor in the Application of EoT
According to Paul, (2013) most contracts do not require the contractor to do more than
give notice of delays, maintain records and provide particulars. Provided that the
contractor has provided details of all events, dates, what work was affected and the like, it
appears that the contractual provisions have been satisfied and the obligation is then on the
architect to decide that extension is reasonable on the basis of the particulars provided
and/ or on the basis of further information obtained from other sources.
Major mistakes which can lead to obstacles to prompt settlement of claims for EoT
applications are: Late, insufficient or total lack of notice of delay on the part of the
contractor, Failure to recognize delay at the appropriate time or failure to describe the
cause of delay, Poor presentation of the application to show how the progress of the work
has been delayed (Gibson, 2008).
2.4.6. Extension of Time Submissions
According to Gibson, (2008) the major obstacles to prompt settlement of submissions for
Extensions of Time include the following:
The erroneous assumption that an Extension of Time automatically grants entitlement
to monetary compensation.
Late, insufficient or total lack of notice of delay or likely delay on the part of the
contractor.
Failure to maintain contemporary records.
Failure to regularly update the program so that the effects of delay can be monitored.
Poor presentation of the claim to show how the progress of the work has been or is
likely to be, impacted.
37
In addition to the above Gibson, (2008) further recommended that for an EoT submission,
the contractor should state:
The material circumstances giving rise to an Extension of Time;
The event or cause of entitlement;
Whether the cause is a relevant event under the contract;
The delay, or likely delay, to the progress of the works;
The likely effect of the event on the completion date of the contract and any
contractual sectional completion dates.
In any claim for an Extension of Time, and whether or not there is a requirement to give
details and particulars, it is good practice to include the following (Thomas, 2008):
A description of the cause of delay and the contractual provision which is being relied
upon for the extension;
The date when the delay commenced and the period of delay (giving details of
intermittent effects, if appropriate);
The date of notice of delay, specifying the reference of the relevant document;
A summary of records and particulars relied upon (with copies included in an
appendix);
A narrative of the events and effects on progress;
A diagrammatic illustration showing the status of the program, progress, and current
completion date prior to the commencement of the delay;
A diagrammatic illustration showing the effects of the delay on progress and the
completion date (including subsequent delays which may have reduced the float in the
program);
A statement requesting an Extension of Time for the delay to completion for the
period shown on the submitted illustrations.
38
2.4.7. Issues in FIDIC MDB, 2010 Perspective on Prolongation of Cost and EoT
Table 2-5: Issues in FIDIC MDB, 2010 perspective on prolongation Cost Claim and EoT
Clauses Issues Type of Compensation
Clause 1.9 Delayed Drawings or Instructions Employer shall extend Time and pay
Cost
Clause 2.1 Right of Access to the Site >> Both Time & Cost
Clause 4.7 Setting Out >> Both Time & Cost
Clause 4.12 Unforeseeable Physical Conditions >> Both Time & Cost
Clause 7.4 Testing >> Both Time & Cost
Clause 7.5 Rejection of tests Contractor shall pay the Cost incurred
Clause 7.5 Remedial Work Contractor shall pay the Cost incurred
Clause 8.6 Rate of progress Contractor shall pay the Cost incurred
Clause 8.7 Delay Damages Contractor shall pay the Cost incurred
Clause 8.9 Consequences of Suspension Employer shall Extend Time and pay
Cost
Clause 8.10 Payment for Plant and Materials in
Event of suspension
Employer shall pay the Cost
Clause 13.7 Adjustments for Changes in
Legislation
Employer shall Extend Time and pay
Cost
Clause 14.8 Delayed Payment Employer shall pay the financing
charges
Clause 16.1 Contractor’s Entitlement to Suspend
Work
Employer shall Extend Time and pay
Cost
Clause 19.4 Consequences of Force Majeure
Employer shall Extend Time and pay
Cost depending on the case
39
2.4.8. PPA 2006 Conditions of Contract on Extension of Time
A. Extension of the Intended Completion Date
Under Clause 28 stated about an extension of the intended completion date: the
following two sub-clauses discussed the engineers' right to extend the intended
completion date.
o Sub-clause 28.1 mentioned the Engineer’s responsibility to extend the Intended
Completion Date if a Compensation Event occurs or a Variation is issued which
makes it impossible for Completion to be achieved by the Intended Completion
Date without the Contractor taking steps to accelerate the remaining work, which
would cause the Contractor to incur an additional cost.
o Sub-clause 28.2, on the other hand, stated that the Engineer’s responsibility to
decide whether and by how much to extend the Intended Completion Date within
21 days of the Contractor asking the Engineer for a decision upon the effect of a
Compensation Event or Variation and submitting full supporting information. If
the Contractor has failed to give early warning of a delay or has failed to cooperate
in dealing with a delay, the delay by this failure shall not be considered in
assessing the new Intended Completion Date.
Sub-clause 44.2 clearly stipulated concerning effects of compensation events (listed
out under sub-clause 44.1), if a Compensation Event would cause additional cost or
would prevent the work being completed before the Intended Completion Date, the
Contract Price shall be increased and/or the Intended Completion Date will be
extended.
In addition sub-clause 44.3 pointed out that, as soon as information demonstrating the
effect of each Compensation Event upon the Contractor’s forecast cost has been
provided by the Contractor, it shall be assessed by the Engineer, and the Contract Price
shall be adjusted accordingly.
40
2.4.9. FPPA 2011 Perspective on EoT
Under clause 44, Exceptional Risks
Under sub-clause, 44.1 mentioned if during the execution of the works the Contractor
encounters artificial obstructions or physical conditions which could not reasonably have
been foreseen by an experienced Contractor, and if the Contractor is of the opinion that
additional costs will be incurred and/or an extension of the period of implementation of
the tasks will be necessary as a result of this, he shall give notice to the Engineer in
accordance with GCC Clauses 73 (Extension of Intended Completion Date). The
Contractor shall specify in such notice the artificial obstructions and/or physical
conditions, giving details of the anticipated effects thereof, the measures he is taking or
intends to take and the extent of the anticipated delay in or interference with the execution
of the works.
Under Clause, 73. Extension of Intended Completion Date
Sub-clause, 73.1 stated the Contractor may request an extension of the Intended
Completion Date if he is or will be delayed in completing the contract by any of the
following causes:
a) Exceptional weather conditions in the Federal Democratic Republic of Ethiopia;
b) Artificial obstructions or physical conditions which could not reasonably have been
foreseen by an experienced Contractor;
c) Compensation Event occurs or change order for modification is issued which makes it
impossible for completion to be achieved by the Intended Completion Date;
d) Administrative orders affecting the date of completion other than those arising from
the Contractor's default;
e) Failure of the Public Body to fulfill his obligations under the Contract;
f) Any suspension of the works which is not due to the Contractor's default;
g) Force majeure;
h) Any other causes referred to in this GCC which are not due to the Contractor's default.
41
Under Clause, 74 Compensation Events for Allowing Time Extension
Under sub-clause, 74.1 stated the following shall be Compensation Events allowing for
time extension:
a) The Public Body does not give access to a part of the Site by the Site Possession Date
stated in the Contractor’s approved work program;
b) The Public Body modifies the Schedule of other Contractors in a way that affects the
work of the Contractor under the Contract;
c) The Engineer orders a delay or does not issue Drawings, Specifications, or instructions
required for the execution of the Works on time;
d) The Engineer instructs the Contractor to uncover or to carry out additional tests upon
work, which is then found to have no Defects;
e) The Engineer unreasonably does not approve a subcontract to be let;
f) The Engineer gives instruction for dealing with an unforeseen condition, caused by the
Public Body, or additional work required for safety or other reasons.
g) Other Contractors, public authorities, utilities, or the Public Body do not work within
the dates and other constraints stated in the Contract, and they cause delay;
h) The advance payment is delayed;
i) The Engineer unreasonably delays issuing Interim Payment Certificates;
j) Other Compensation Events described in the SCC or determined by the Public Body
and force majeure.
2.5 GAP Identification
The contractor provides unrealistic and unfair time extension request to the consultant for
approval. The consultant and the employer accepted his request due to different reasons
including fearing the prolonged justice process in the country. This makes our contractors
reluctant on keeping project completion date.
Even if the liquidated damage clause is included in contract documents of building
construction projects its implementation practice is vary for different clients during
projects are became delay so in this study the practice and implementation of Prolongation
Cost Claim, Liquidated Damage and Extension of Time were conducted by taking Bahir
Dar University Building Projects as a case study.
42
CHAPTER THREE
METHODOLOGY
3.1. Study Design
The Methodology considered and adopted for this research work focused on literature
review and, questionnaire survey designed and employed to assess the practice and
implementation of liquidated damage, prolongation cost claims and extension of time in
Bahir Dar University Building Construction Projects. It also uses a mixed research method
both quantitative by questionnaire and qualitative methods by using documentation review
taking case-studies in the data collection process. The quantifiable responses were
analyzed through a quantitative method as the name implies. The qualitative data gives
more emphasis to the non-quantifiable responses and it is chosen due to its flexible nature.
In recent times, the responses gathered through questionnaires are becoming less reliable
as the respondents didn’t give due attention to the outcomes, it is essential to strengthening
through documentation reviews (Nagata, 2013). Therefore, the qualitative method used to
support the quantitative data that was collected in this research. Finally, based on the
obtained data and results of the analysis, conclusions and recommendations will be
provided.
According to Kothari, (2004) discussed a research as a process of collecting, analyzing
and interpreting information to provide solutions to questions. For the purpose of this
thesis, a research is defined as a practical investigation or exploration to find out new facts
or assemble old facts by scientific ways for the purpose of developing existing theory or
its application for real problems.
43
To accomplish the objectives of this study, the researcher used the following
methodologies.
Literature review of different books, master’s thesis, web sites of similar cases and
sample project reports.
Data sources: Study population (Employees of Contractors and Consultants working in
Bahir Dar University Building projects).
Research instruments and data collection: by collecting information and data through
questionnaires and documentation review by taking case studies.
Data analysis: quantitative (questionnaire) and qualitative analysis (documentation
reviews in the form of case-studies).
The outcomes of the questionnaire survey were supported by conducting a case study on
selected Bahir Dar University Building Construction Projects. Documentation reviews
were mostly from on-going projects, in which contract documents, project reports,
correspondence letters, and payment certificates were investigated thoroughly which will
be very important in identifying the recurrent problems.
Overall, the following procedures were conducted and followed throughout the thesis
writing: the thesis proposal was developed, after background study second variables were
identified through the literature review third the questionnaire was developed and
distributed then questionnaire responses were collected from respondents lastly the
collected data were analyzed, discussed and findings were taken out.
3.2. Study Area
The study area of this research is Bahir Dar. The research was assessed building
construction projects of Bahir Dar University in relation to the effect of delays Liquidated
Damage, Prolongation Cost Claims and Extension of Time.
3.3. Sample and Sampling Techniques
Sampling design is a definite plan for obtaining a sample from a given population. It refers
to the technique or the procedure the researcher would adopt to select units for the sample.
It will also indicate the number of units to be included in the sample also known as
Sample size. The first step in developing any sampling design is to clearly define the
aggregate of sampling units, namely the population.
44
In this study, purposive sampling technique was used to select the representative sample
population. Purposive sampling of participants is intentionally selected based on specific
purposes associated with answering research questions (Naoum, 1998) . Purposive
sampling is labeled as "theoretical sampling". It is a useful sampling method consisting of
getting information from a sample of the population that one thinks to know more about
the subject matter.
3.4. Target Populations and Sample Size Determinations
The following general rules are helpful in determining sample size: The larger the
population size, the smaller the percentage of the population required to get a
representative sample.
For smaller populations, if the total population (N) is less or equal to 100, survey the
entire population.
If the total population (N) is around 500, 50% should be sampled.
If the total population (N) is around 1,500, 20% should be sampled.
If the total population (N) beyond a certain point – at about 5000 units or more, a
sample of 400 people is adequate (Gay L. & Airasian P., 2003).
The actual sample size of the research was determined with regard to the number of
projects covered in Bahir Dar University building construction projects. The reason
behind the sample size with regard to the number of projects was to increase the number
of respondents for the purpose of the validity of the research. Therefore, the following
table 3-1 shows the target population of the research and number of projects covered in
Bahir Dar University building construction projects.
45
Table 3-1: Sample Size & Target Populations of the Study On-going BDU Building
Projects
No Project Name Project
Location,
Contractor Consultant No. of
Employees
1 BIT Students
dormitory
Poly NASEW
construction Plc
BD Consult 3
2 BIT Class Room Poly FE construction Plc BD Consult 4
3 EITEX LOTVII Textile FE construction Plc CDSCO 6
4 Workshop &
Laboratory
Poly Flintstone
Engineering
BD Consult 4
5 PHD Student
dormitory
Poly Flintstone
Engineering
CDSCO 3
6 EITEX LOT III Textile GAD Construction CDSCO 5
7 Lot-VI Assembly
hall, administration
Textile Berhan Tobiaw CDSCO 7
8 Medical Faculty
lot 4
Sebatamit Tekeleberhan
Ambaye
BD Consult 5
9 Medical Faculty
lot 3 library cafeter
Sebatamit Yencomad
construction Plc
BD Consult 2
10 Medical Faculty
lot 3
Sebatamit SATCON BD Consult 3
11
Bahir Dar University Coordinating Office Engineer’s 5
12 Total Population (Engineers) working in BDU Building Projects 54
(Source: Bahir Dar University Coordinating Office of Physical Projects)
Since the total population (Engineers) working in Bahir Dar University projects are 54
which is less than 100 the researcher took the entire population for this study but 4 of the
Engineers were not avail in their office during questionnaire distribution due to different
reasons and 5 Engineers were not returned the questionnaire due to business in their job so
the actual sample size of this study was 45 (which were filled and returned). This means
that the researcher employed comprehensive sampling technique.
46
3.5. Research Design Flow Chart
Figure 3-1: Research Design and Flow Chart
Title Selection and Problem Identification Research Objective Literature Review Development of Methodology
1. Research design
2. Questionnaire Design
Data and Information Collection
Case-Study
Questionnaire
Analysis and Discussion
Conclusion and Recommendation
47
3.6. Data Collection Method
This study was adopted both quantitative and qualitative research methodology. A
literature review was done to build a conceptual framework in providing a basis for
project delays specifically focused on the consequences of project delay which are
Liquidated Damage, Prolongation Cost Claims and Extension of Time.
The required data was collected by using a well prepared and pretested questionnaire. A
questionnaire was developed in order to assess the perceptions of different parties
involved in the Building Construction Projects of Bahir Dar University, for the assessment
of implementation and practice Liquidated Damage, Prolongation Cost Claims and
Extension of Time. The researcher preferred to collect the required information by using
questionnaires and documentation review since the questionnaire is used in both
qualitative and qualitative research.
The questionnaire was designed from the literature and contained close-ended questions.
These types of questions have a number of choices of possible answers and the
respondents selected whatever they feel will most appropriate. The reason for selecting a
questionnaire method for this research was because it has the merit of giving adequate
time for informants to respond, not easily approached respondents can be reached
conveniently, large sample members can be addressed, and economically cheap. Similarly,
the closed-ended questions were also selected because they are easier to assess and answer
considering how busy the respondents were. Meanwhile, contractual matters and
documentation reviews were reviewed by the researcher to verify participants’ responses.
The data collection approach adopted for conducting this research included both primary
and secondary sources. Questionnaire and documentation reviews provided the primary
data for this thesis while the secondary data sources include renowned Civil Engineering
journals those especially in project and Construction Management, internet sources, as
well as reviewing related archival documents (such as contract documents) on contractual
issues of various construction works. These different methods of data collection will be
used in order that the data or information obtained from one can be supplemented by the
others whereby the collected data will give multiple pieces of evidence.
48
3.6.1. Questionnaire
According to Kothari,(2004) questionnaire is the most common data gathering tool which
helps to collect a great deal of information within a limited time and helps to reach large
group of reasearch participants.
For the questionnaire survey, respondents were Employees of Employer’s organization,
Contractors and Consultants who have been involved in the Bahir Dar University Building
Construction Projects. The questionnaire which consisted of both open and close-ended
questions was distributed among these professionals.
The questionnaire had four parts. The first part of the questionnaire contained items of
respondent’s general profiles. The second part of the questionnaire consisted items to
measure for liquidated damage practices and implementations. The third part of the
questionnaire consisted items to measure for prolongation cost claims practices and
implementations. The last part of the questionnaire contained items to measure for
extension of time practices and implementations.
3.6.2. Documentation Review
Documentation review of contract documents of the building projects were used in this
research to support or supplement responses and arguments find by questionnaire
concerning the implementation of liquidated damage clause and major reasons of
justifying extension of time in Bahir Dar University building projects. Of course, as the
nature of the cases focuses on one aspect of a problem or practice, the conclusion drawn
may not be generalized, but rather related to one particular event.
3.6.2.1. Targeted Case Studies
Case studies are generalizable to the theoretical proposition and not to populations or
universes. A Case-Study doesn’t represent a 'sample', and the researchers' goal is to
expand and generalize theories (analytical generalization) and not to enumerate
frequencies (statistical generalization). Eight (8) Case-Studies have been selected for
analysis and evaluation of the Extension of Time claims and seven (7) Case-Studies have
been selected for analysis and evaluation of practice and implementation of Liquidated
Damage.
49
3.6.3. Secondary Data Sources
Archival documents, contract documents and other related documents were reviewed to
understand the consequences of project delays with special focus on Prolongation Cost
Claims, Extension of Time and Liquidated Damage on Practice and Implementation in
Public Building Construction Projects (focused on a case-study on Bahir Dar University
Building Construction Projects).
3.7. Data Analysis
The data analysis was determined to establish the relative importance of various factors,
analysis of data consisted of calculating the Relative Importance Index (RII) and Ranking
of factors in each category based on the Relative Importance Index (RII). The responses to
the questionnaires were based on the Likert Scale of ordinal measures according to the
degree of contribution to each question. The main approach used to analyze the data is by
using the Relative Importance Index (RII) technique for the ranking of factors for the
practice of Liquidated Damage, Prolongation Cost Claim and Extension of Time through
excel spreadsheet (Odeh & Battaineh, 2002).
𝑅𝐼𝐼 =∑ 𝑊
(𝐴∗𝑁) [Equation 3.1]
Where: 𝑤 = is the weight given to each factor by the respondents,
𝐴 = is the highest weight or rank and
𝑁 = is the total number of respondents that answered the question
In this research, descriptive statistical method was used for the analysis of data collected
from various sources. For summarizing of the collected data and to determine the number
of responses belonging to each category, Frequency Tables by SPSS 21 was used together
with Excel frequency analysis for a cross-check for the reliability of analysis output. In
addition, SPSS 21 was used to investigate the level of association (agreement) in response
among any pairs of respondent groups by cross-tabulation of their responses.
3.7.1. Spearman rank correlation coefficient
According to Die, (2006) spearman rank correlation coefficient was used to determine the
strength of rankings between two parties i.e. between contractor and consultant, contractor
and client, client and consultant.
50
The Spearman rank correlation coefficient is calculated using the following Equation:
(Pourrostam &Ismail, 2012).
𝑟𝑠= 1 −6∗∑𝑑
(𝑁3−𝑁) …………………………………………….………... [Equation 3.2]
Where
rs= Spearman rank correlation coefficient;
d =Difference in ranking between two parties
N = Number of variables.
The value of the Spearman rank correlation coefficient ranges from +1 (perfect
correlation), to 0 (no correlation), to −1 (perfect negative correlation).
3.8. Research Validity and Reliability
3.8.1. Research Validity
The draft questionnaires were given to experts in research to ascertain the items suitability
in obtaining information according to research objectives of the study. This process
assisted in eliminating any potential problems of the research instrument and to test the
validity and workability of the instrument. The quality of this study was improved by
discussions with peers in the form of conversations, comments from Engineers who have
lot of experiences in Construction Projects and thesis advisors comments and suggestions
were taken into consideration to improve the quality of this research study.
3.8.2. Research Reliability
A research instrument is reliable if it is consistent and stable. Reliability was analyzed
using SPSS 21 by calculating the correlation of values of items for questions of which
responses are predicted. In the context of this study, the reliability of the questionnaire
was ensured by testing the tool using the Cronbach's co-efficient alpha.
It was noted that the closer the coefficient is to 1, the more reliable the survey instrument
is. Thus, the optimal Cronbach's coefficient alpha value should be above 0.7 (Fellows &
Liu, 2007).
51
CHAPTER FOUR
RESULTS AND DISCUSSION
This chapter analyses the data gathered using a questionnaire and an analysis of
documentation reviews (case-study). It discusses the profile of participants in the study,
reliability testing, analysis of questionnaire responses and documentation reviews (case-
study analysis) and formulates conclusions and recommendations.
4.1. Reliability Testing
Reliability testing for independent variables calculates the coefficient of reliability based
on the average correlation of items within a scaled test considering the items were
standardized. Cronbach’s Alpha Coefficient used to test the reliability varies from 0 to 1;
the closer the coefficient is to 1, the more reliable the scale. Table 4-1 shows that the
reliability test result which is Cronbach’s Alpha coefficient values for different variables,
it indicates that the responses of questionnaire respondents reliable.
Table 4-1: Reliability Testing
Name of Variables Cronbach's Alpha N of Factors
Easy to Testify LD 0.75 3
Alternatives to enhance the Enforcement of LD 0.83 4
Possible Impacts of LD 0.72 4
Difficulty Level in Estimating Prolongation Cost 0.75 7
Reasons for Project Delay that Could Justify EoT 0.8 6
Common Mistakes by the Contractor 0.84 7
4.2. Spearman Rank Correlation Coefficient
Below table 4-2 indicates the spearman rank correlation coefficient by taking one factor
number 2 which showed in appendix-6 for was determined to assess the strength of
relationship between two parties of ranking. Since correlation b/n client and consultant,
client and contractor and consultant and contractor 0.8, 0.8 and 1 respectively this shows
there is strong correlation. It was calculated using equation 3.2 shown above. The value of
the Spearman rank correlation coefficient ranges from +1 (perfect correlation), to 0 (no
correlation), to −1 (perfect negative correlation).
52
These values show that there is very strong agreement or correlation between the rankings
of client and consultant as well as client and contractor. Moreover, the agreement of
rankings between and consultant and contractor is also perfect correlation.
Table 4-2: Correlation Coefficient of the Agreement between the Parties in Rankings
Respondents Client Consultant Contractor
Client 1.000
Consultant 0.8 1.000
Contractor 0.8 1 1.000
Number of Variables=4
4.3. Questionnaire Survey
The questionnaire was distributed for employees of companies with different roles such as
owner (Bahir dar University physical project office), Contractor’s and Consultant’s
working in Bahir dar University building construction projects. The questionnaires were
distributed through face-to-face mechanisms for all respondents. The questionnaire was
distributed to 50 Engineer’s and the response rate of the survey was 45 (90%).
4.3.1. Respondents General Information
4.3.1.1. The Parties Where Respondents Were Working
In this research from the total 45 respondents 6.67% (3) from clients, 24.4% (11) are from
consultants and the rest 68.9% (31) are from contractors.
53
Figure 4-1: The Parties Where Respondents Working
4.3.1.2. Gender of Respondents
Table 4-3: Gender of Respondents
The above table 4-3 showed that from the total respondents 36 (80%) are male Employees
and the rest 9 (20%) are female Employees who are working in a different position.
Gender of Respondents
Male Female
Count Row N % Count Row N %
36 80.0% 9 20.0%
54
4.3.1.3. Respondents Job Position in the Company
Figure 4-2: Respondents Job Position
From the above Figure 4-2, the respondent’s job position is Project Managers (22.22%),
Resident Engineers (22.22%), Site Engineers (20%) and the highest of all respondents are
Office Engineers (35.56%).
4.3.1.4. Professional Experiences of the Respondents
Table 4-4: Professional Experiences of Respondents
Professional Experience
Frequency Percent Valid Percent Cumulative
Percent
Valid
0-5 Years 18 40.0 40.0 40.0
5-10 years 14 31.1 31.1 71.1
10-15 Years 9 20.0 20.0 91.1
15 years and Above 4 8.9 8.9 100.0
Total 45 100.0 100.0
From the professional experience of the respondents, 40% of them have working
experiences up to 5 years, 31.1% of the respondents have experienced between 5-10 years,
20% have experienced between 10-15 years and 8.9% have experienced above 15 years.
55
4.3.1.5. Educational Qualifications of the Respondents
Figure 4-3: Educational Qualification of the Respondents
The above Figure 4-3 shows the educational qualification of the respondents of which
68.89% are Bachelor’s Degree holders, 24.44% are Master’s Degree holders and 6.67%
are Diploma holders.
4.3.2. Issues Related with Liquidated Damage
4.3.2.1. Which Test of Liquidated Damage is Easy to Satisfy
Table 4-5: Tests of Liquidated Damage Easy to Satisfy
Which Test of Liquidated Damage is Easy to Satisfy
Factors 1 2 3 4 RII Rank The parties must intend to liquidate (i.e. stipulate to the
amount) the damages in advance 11 15 11 8 0.59 3
The damages anticipated as a result of the contract breach
(such as a contractor’s delay must be uncertain in amount or
difficult to prove) 6 15 16 8 0.64 1
The amount stipulated must be reasonable, that is to say, not
greatly disproportionate to the anticipated loss or injury
(Estimates) 7 20 8 10 0.62 2
(1-Most Easy, 2-Easy, 3-Fairly Easy and 4-Not Easy)
56
From above table 4-5 the damages anticipated as a result of the contract breach (such as a
contractor’s delay must be uncertain in amount or difficult to prove is (RII=0.64) is the 1st
rank and the amount stipulated must be reasonable, that is to say, not greatly
disproportionate to the anticipated loss or injury (Estimates) has (RII=0.62) is the 2nd rank
from the perspective of tests of liquidated damage easy to satisfy.
4.3.2.2. Recommendation for Parties to a Contract in the Event of Delays as an
Alternative to enhance the Enforcement of Liquidated Damage Clause
Table 4-6: Alternatives to enhance the Enforcement of the Liquidated Damage Clause
Alternatives to enhance the Enforcement of the LD Clause
Alternatives 1 2 3 4 RII Rank Insurance against losses 10 8 13 14 0.67 2
Bonus clause for early completion 8 6 13 18 0.73 1
Suing the contractor for the damages suffered 5 16 19 5 0.63 3
Determination / Termination of contracts and retender 21 9 6 9 0.52 4
1-Least Recommended 2-Merely Recommended 3-Recommended 4–More Recommended
For alternatives to enhance the enforcement of liquidated damage clause bonus clause for
early completion has (RII=0.73) which is the 1st option, insurance against losses has
(RII=0.67) 2nd option and the 3rd alternative is suing the contractor for the damages
suffered which has (RII=0.63).
57
4.3.2.3. Possible Impacts of Liquidated Damage Clause in Building Construction
Contracts
Table 4-7: Possible Impacts of Liquidated Damage Clause in Building Construction
Contracts
Possible Impacts of the Liquidated Damage Clause in Building Construction Contracts
Possible Impacts 1 2 3 4 5 RII Rank Promote timely project completion 6 6 3 13 17 0.73 2
Reduce rampant unapproved delays of projects 0 7 14 17 7 0.71 3
Improve project performance with respect to time 3 5 7 15 15 0.75 1
Lead to intimidated and apprehension of building
contractors prior to entering into contract agreements 2 6 16 16 5 0.67 4
1-Not at all 2-Slightly 3-Moderately 4-Very 5-Extremely
From the above table 4-7 regarding the possible impact of liquidated damage clause in
building construction contracts improve project performance with respect to time has 1st
rank (RII=0.75), promote timely project completion has 2nd rank (RII=0.73) and reduces
rampant unapproved delays of projects has 3rd rank (RII=0.71).
4.3.2.4. The practice of Contract Management Principles in Projects Concerning to
Liquidated Damage
Table 4-8: Practice of Contract Management Principles Concerning the Liquidated
Damage
The Practice of Contract Management Principles Concerning to Liquidated Damage
Practice Yes % Yes No % No
Inclusion of Liquidated Damage clause in building construction contracts 40 88.9 5 11.1
Deduction of Liquidated damage when there is a delay by the contractor 30 66.7 15 33.3
Granting of EOT when there is a delay not due to the client’s organization 31 68.9 14 31.1
Repayment of Liquidated Damage, when EOT is granted subsequently 27 60 18 40
58
Concerning the practice of contract management principles to Liquidated Damage, 88.9 %
of the respondents stated there is an inclusion of Liquidated Damage clause in building
construction contracts and 66.7 % of the respondents agree that there is a deduction of
Liquidated Damage when there is a delay by the contractor.
4.3.2.5. The Challenge of Liquidated Damage Provision in Court
Figure 4-4: Challenge of Liquidated Damage Provision in Court
The other issue is regarding the challenge of liquidated damage provision in court 73.33%
of the respondents were clearly stated they were challenged cases for court and the other
side 26.67% said they did not challenge in court for cases concerning liquidated damage.
59
4.3.2.6. Organizations which follows an Established Cost Estimating Technique
/Methodology in Preparing Liquidated Damage.
Figure 4-5: Organizations which follows an Established Cost Estimating Technique in
Preparing LD
From the above Figure 4-5 the majority of the respondents clearly stated (66.7 %) they
follow an established cost estimating technique in preparing liquidated damage and the
other (33.3 %) they said there is no established cost estimating technique.
60
4.3.3. Questions Related to Prolongation Cost Claims
4.3.3.1. The Occurrence Level of Prolongation Cost Claim in BDU Building Construction
Projects
Figure 4-6: Occurrence Level of Prolongation Cost Claim
The occurrence level of prolongation cost claim in Bahir Dar University building
construction projects from the respondents 40% of them stated there is a frequent
occurrence, 31.1% of the respondents mentioned that there is a least frequent occurrence
of prolongation cost claims and the other side 24.44% of the respondents clearly stated
there is no occurrence.
61
4.3.3.2. The Difficulty Level in Estimating Prolongation Cost Claim
Table 4-9: The Difficulty Level in Estimating Prolongation Cost Claim
The Difficulty Level in Estimating Prolongation Cost Claim
List of Cost Claims 1 2 3 4 RII Rank
Extended and Increased Site Costs (Site
Overheads or Preliminaries) 12 15 17 1 0.54 5
Head office overhead cost 7 21 15 2 0.57 3
Inefficiency/ Lost productivity cost 14 15 13 3 0.53 6
Financial Charges and Interest 6 14 20 5 0.63 1
Inflation 11 11 13 10 0.62 2
Loss of Profit/Opportunity cost 11 16 14 4 0.56 4
Claim Preparation Costs 7 11 23 4 0.63 1
1-Very Difficult 2-Difficult 3-Easy 4-Very Easy
The major difficulty level in estimating prolongation cost claim is both claim preparation
costs and finance charges and interest which have (RII=0.63), the second difficulty is
become inflation with (RII=0.62) and the third one is head office overhead cost has
(RII=0.57).
62
4.3.3.3. The Clarity of handling Prolongation Cost Claims in the Clauses or Conditions of
Contract
Figure 4-7: Clarity of handling Prolongation Cost Claims in Conditions of Contracts
Concerning the Clarity of handling prolongation cost claims in conditions of contracts,
25(55.6%) of the respondents mentioned there is a good clarity, 8(17.8%) of the
respondents said there are a fair clarity and 7(15.6%) of respondents they gave a poor
judgment to clarity of handling prolongation cost claims in conditions of contracts.
63
4.3.4. Questions Related with Extension of Time Claims
4.3.4.1. Average Delay of the Projects Exposed
Figure 4- 8: Average Delay of Projects Exposed
The majority of the respondents 57.78% said that in Bahir Dar University projects the
average delay of projects exposed is above 21%, 17.78% of respondents stated that
between 5-10% and 13.33% stated that it is in the range between 16-20%.
4.3.4.2. Action is taken when Projects are Getting Delayed
Figure 4-9: Action is taken when Projects are Getting Delayed
64
From the figure 4-9 the action taken during projects is getting delayed most projects
55.56% requested extension of time claims and 31.11% of projects employee more
resources.
4.3.4.3. Availability of Record-Keeping System in the Project
Table 4-10: Availability of Record-Keeping Systems in the Projects
Availability of a record-keeping system
Frequency Percent Valid Percent Cumulative
Percent
Valid
Yes 31 68.9 68.9 68.9
No 10 22.2 22.2 91.1
Not Applicable 4 8.9 8.9 100.0
Total 45 100.0 100.0
The availability of record-keeping systems 68.9% of the respondents said they used and
22.2% of them were they did not have the availability of the record-keeping systems in
their companies.
4.3.4.4. Proper Documentation and Record-Keeping Systems can reduce the number of
Claims
Table 4-11: Proper Documentation and the Record-Keeping System can reduce no. Claims
Proper documents and record Keeping systems can reduce the number of claims
Frequency Percent Valid Percent Cumulative
Percent
Valid
Yes 37 82.2 82.2 82.2
No 7 15.6 15.6 97.8
Not Applicable 1 2.2 2.2 100.0
Total 45 100.0 100.0
82.22% of the respondents agree on proper documents and record-keeping systems can
reduce the number of claims and on the other side, 15.6% of them said this is not enough
to reduce the number of claims.
65
4.3.4.5. Lost Entitlement to a Claim due to Improper Documentation and Record-Keeping
Systems
Table 4-12: Lost Entitlement to a Claim due to Improper Documentation and Record-
Keeping Systems
Lost entitlement to a claim due to improper documentation and record-keeping
Frequency Percent Valid Percent Cumulative
Percent
Valid
Yes 18 40.0 40.0 40.0
No 23 51.1 51.1 91.1
Not Applicable 4 8.9 8.9 100.0
Total 45 100.0 100.0
Due to the improper documentation and record-keeping majority, 51.1% of the
respondents did not lose entitlement to a claim and the other side 40% of the respondents
said they lost entitlement to a claim due to this.
4.3.4.6. Type of Claim Most Recent or Current Projects Face
Table 4-13: Types of Claims Most Recent or Current Projects Faced
Type of claim most recent or current projects faced
Frequency Percent Valid Percent Cumulative
Percent
Valid
Extension of time 43 95.6 95.6 95.6
Acceleration cost claims 2 4.4 4.4 100.0
Total 45 100.0 100.0
The majority of the respondents 95.6% agreed on an extension of time is a type of claim
most recent current projects faced and 4.4% of the respondents mentioned there is an
acceleration cost claims happened in current projects.
66
4.3.4.7. Reasons for Project Delay that Could Justify Extension of Time
Table 4-14: Reasons for Project Delay that Could Justify Extension of Time
Reasons for Project Delay that Could Justify Extension of Time
Reasons for the Project Delay 1 2 3 4 RII Rank
Force majeure 9 19 8 9 0.59 5
Exceptionally inclement weather 4 19 15 7 0.64 3
Late instructions, drawings or level 0 11 14 20 0.8 1
Delay in the supply of materials and goods by the
employer 9 14 11 11 0.63 4
Testing and inspection 6 27 8 4 0.56 6
Delay in giving possession of site 4 19 11 11 0.66 2
1-Never 2-Sometimes 3-Often 4-Very Often
The major reasons for project delay that could justify an extension of time are late
instructions, drawings or level becomes the 1st rank with (RII=0.8), Delay in giving
possession of site is becomes 2nd rank with (RII=0.66) and exceptionally inclement
weather becomes 3rd rank with (RII=0.64).
4.3.4.8. Common Mistakes by the Contractor during the Request of Extension of Time
Table 4-15: Common Mistakes by the Contractor during the Request of Extension of Time
Common Mistakes by the Contractor during the Request of Extension of Time
Common Mistakes 1 2 3 4 RII Rank
Late or lack of notice from the contractor 3 16 15 11 0.68 2
Failure to recognize delay or failure to describe
the cause of delay 5 21 11 8 0.62 4
Failure to state the date when delay commenced
and the period of delay 7 17 14 7 0.62 5
Poor presentation of the application to show how
the progress of the work has been delayed 6 22 10 7 0.6 6
Lack of proper baseline schedule 5 8 25 7 0.68 2
Lack of proper site records and particulars relied
upon 2 15 23 5 0.67 3
Insufficient quality of information (Information is
not kept and not updated) 3 16 14 12 0.69 1
1-Never 2-Sometimes 3-Often 4-Very Often
67
From the common mistakes by the contractor during request of extension of time
insufficient quality of information (information is not kept and not updated) is become the
1st rank with (RII=0.69), lack of proper baseline schedule and Late or lack of notice from
the contractor are become 2nd rank with (RII=0.68) and lack of proper site records and
particulars relied upon becomes 3rd rank with (RII=0.67).
68
4.3. Case Study on Extension of Time
All eight case studies were based on information obtained from project documents
including extracts of relevant records such contract documents, a notice of delay, work
program, correspondence, and records relating to an extension of time issues, minutes of
meetings, progress reports, rainfall records, and other data furnished by the relevant
companies. The case studies and analysis are presented to highlight both the legal and
technical aspects of claims submitted by contractors, the validity of the grounds claimed,
the sufficiency of the methods used in arriving at the number of days claimed and the
methods which contract administrators used in evaluating contractors. The projects were
selected based on the willingness of the contractors to share information.
4.3.1. Case Study-1
Project Name: EiTEX Lot-5
Client: Bahir dar University
Consultant: B.U.D.S.W.S
Contractor: Yotek Construction Plc.
Site hand-over date: 18/05/2008E.C
Mobilization: 21 days
Total Contract days: 540 days
Commencement date: 10/06/2008 E.C
Date of completion: 05/12/2009E.C
Days extended due to variation works:
123 days
Days granted before variation: 202 days
Days currently requested: 610 days
Days currently approved: 53 days
Total project days: 918 days
69
Table 4-16: Case Study-1 for EoT
s.n Justification for request R G Justification for approval
01 Late material delivery of sub-
contractor and foreign
currency exchange problem
381 53 Executed work on between request of
extension of time from 03/01/2018-
18/06/2018 is 166 days 52,433,649.06
executed amount
52,433,649.06 ∗ 540 𝑑𝑎𝑦𝑠
251,130,916 = 113 days
So, 53 days granted by deduction 113 days
from 166 days
02 The late decision regarding
mechanical installation works
98 - Granted before
03 Delayed indoor & Cupboard
specification detail
143 - The request will be considered on the
future request
04 A late decision regarding
specification detail for
lightbox.
30 -
05 Late in a plan for fashion
event presentation hall
39 - Granted on request “01”
Total Days 691 53
(G-Contractor’s Extension of Time Granted) (R-Contractor’s Extension of Time
Requested)
Analysis of Case Study-1
From the above case –study 1 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 918 days
Total number of days requested by the contractor was 691 days
Percentages (%) of days requested to total project days= (691/918)*100=75.3%
Total number of days approved by the contractor was 53 days
Percentages (%) of days approved to total project days= (53/918)*100= 5.8%
The major reason for an extension of time granted was the late material delivery of sub-
contractor and foreign currency exchange problems.
70
4.3.2. Case Study-2
Project Name: EiTEX Lot-VII
Client: Bahir dar University
Consultant: B.U.D.S.W.S
Contractor: FE Construction Plc.
Site hand-over date: 19/04/2009E.C
Mobilization: 21 days
Total Contract days: 540 days
Commencement date: 11/05/2009 E.C
Date of completion: 06/11/2010E.C
Days extended due to variation works: 19
days
Days granted before variation: 202 days
Days currently requested: 445 days
Days currently approved: 144 days
Total project days: 941 days
Table 4-17: Case Study-2
s.n Justification for Request R G Justification for Approval
01 Additional works for fence
work
66 54
02 Late sanitary drawing detail
manhole specification
69 - Not granted because of the work
detail will not affect other works
03 Change order for modification
works
46 45 From 14/05/2010-29/06/2010 E.C a
total of 45 days granted
04 Change order due to finishing
materials approval
98 29 Total cost is 352758958.67
29 days granted for delay of marble
05 Late approval of epoxy color
for aluminum works
316 16 A total of 16 days granted due to
delay in selection of aluminum
sample
06 Late in a decision regarding
finishing works plan
differences
40 - The request is rejected due to it is not
according to work plan
07 Delayed payment 79 - The requested days are below 90
days which stated under contract
document the contractor not granted
Total Days 445 144
71
Analysis of Case-study-2
From the above case –study 2 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 941 days
Total number of days requested by the contractor was 445 days
Percentages (%) of days requested to total project days= (445/941)*100=47.3 %
Total number of days approved by the contractor was 144 days
Percentages (%) of days approved to total project days= (144/941)*100= 15.3%
The major reasons for the extension of time granted were:
Additional works for fence work granted 54 days which has (54/144)*100=37.5% from
the total granted days.
Change order for modification works granted 45 days which has (45/144)*100=31.25%
from the total granted days.
Change order due to finishing materials approval granted 29 days which has
(29/144)*100=20.1% from the total granted days.
4.3.3. Case Study-3
Project Name: EiTEX Lot-VII
Client: Bahir dar University
Consultant: B.U.D.S.W.S
Contractor: Yotek Construction Plc.
Site hand-over date: 18/05/2008E.C
Mobilization: 21 days
Total Contract days: 540 days
Commencement date: 10/06/2008 E.C
Date of completion: 05/12/2009E.C
Days extended due to variation works: 98
days
Days granted before variation: 172 days
Days currently requested: 420 days
Days currently approved: 30 days
Total project days: 840 days
72
Table 4-18: Case Study-3
s.n Justification for request R G Justification for approval
01 Late in re-design of training &
main store workshop block
25 - The contractor did not include
training & main store workshop in
the work schedule
02 Late in a decision regarding
selection of dumping area for
boulder stone
5 2 Executed Work b/n 11/06/2008-
16/06/2008 E.C is 1,291,016.47
1,291,016.47 ∗ 540 𝑑𝑎𝑦𝑠
251,730,916 = 3 days
So, 2days was granted
03 The late decision to right of
way problems
15 4 The contractor stopped work for 20
days from 07/08/2008-27/08/2008
E.C executed work was 7,257,652.69
in other buildings.
7,257,652.69 ∗ 540 𝑑𝑎𝑦𝑠
251,730,916 = 16 days
So, 4 days granted by deduction 16
days from 20 days.
04 Different variation works 9 - Granted in number 2
05 Work interruption due to
political un-rest
11 11 The reason is accepted
06 A late decision regarding
fixing of ramp height
90 - The work is suspended due to
compound landscape work.
07 A late decision regarding
selection of electrical materials
from flush to surface-mounted
120 2 Contractors variation work amount is
772,295
772,295 ∗ 540 𝑑𝑎𝑦𝑠
251,730,916 = 2 days
08 A late decision regarding
differences in specification
detail for door & cupboard
60 -
09 Late decision regarding
to a difference in drawing b/n
structural & architectural for
fashion hole roof plan
85 11 Cost for different steel truss, ceiling
and some mechanical installation
works is 5,145,413.92
5,145,413.92 ∗ 540 𝑑𝑎𝑦𝑠
251,730,916 = 11 days
Total Days 420 30
73
Analysis of Case study-3
From the above case –study 3 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 840 days
Total number of days requested by the contractor was 420 days
Percentages (%) of days requested to total project days= (420/840)*100=50 %
Total number of days approved by the contractor was 30 days
Percentages (%) of days approved to total project days= (30/840)*100=3.6 %
The major reasons for the extension of time granted were:
Work interruption due to political un-rest granted 11 days which has (11/30)*100=36.7%
from the total granted days.
A late decision regarding the difference in drawing b/n structural & architectural for
fashion hole roof plan granted 11 days which has (11/30)*100=36.7% from the total
granted days.
A late decision to right of way problems granted 4 days which has (4/30)*100=13.3%
from the total granted days.
4.3.4. Case Study-4
Project Name: BiT Students Dormitory
Client: Bahir dar University
Consultant: B.U.D.S.W.S
Contractor: Nasew Construction Plc.
Site hand-over date: 19/03/2010E.C
Mobilization: 21 days
Total Contract days: 540 days
Commencement date: 11/04/2010 E.C
Date of completion: 06/10/2011E.C
Days extended due to variation works: 24
Days granted before variation: -
Days currently requested: 354 days
Days currently approved: 276 days
Total project days: 816 days
74
Table 4-19: Case Study-4
s.n Justification for Request R G Justification for Approval
01 Late due to wastewater
drainage pipe is located in a
site
12 12 Granted for late possession of site
02 Contract agreement differences
for sites regarding employees
10 - It was the contractors responsibility
to observe the site before bid
submission
03 Late due to demolish up to re-
constructing of shade for
backing injera
63 61 Granted total of 61 days from Dec
22/2010- Feb 22/2010 E.C
04 Due to additional works
concerning with FFL
15 15 Granted due to late decision
regarding floor finish level difference
05 Due to variation works for
boulder fill
16 - Consider after detail work schedule
will be approved
06 Rainy season from June-
September,2010 E.C
14 - Contractor submitted insufficient
document considering the case
07 Due to flood & increase height
of under-ground water during
summer
125 125 Granted a total of 125 days from July
17/2010- Dec 10/2011
08 Design change for footing
from mat to isolated pad
45 36 Granted from 24/03/2011 E.C –
30/04/2011 E.C by deduction of
0.14% executed work which is 1 day
09 Due to variation work for
basement excavation
12 - The case is similar to case-5 above
10 A late decision regarding
clarification for bent up pad
combined footing
92 27 Granted from 27/07/2010 –
23/08/2010 E.C of 27 days
11 Delay in approval for materials
& samples
22 - It is the contractors obligation to
approve on time
12 Delay in advance payment 16 -
13 Absence of resident engineers
on site
30 -
14 Delay in approval of
contractor’s engineers by
consultant
29 -
15 Additional works for water
percolation
13 -
75
16 Delay in materials delivery
from abroad
11 -
17 Due to religious ceremonies 19 - The reason is not accepted b/c it is
not included under contract
agreement
Total Days 354 276
Analysis of Case Study-4
From the above case Study-4 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 816 days
Total number of days requested by the contractor was 354 days
Percentages (%) of days requested to total project days= (354/816)*100=43.4 %
Total number of days approved by the contractor was 276 days
Percentages (%) of days approved to total project days= (276/816)*100=33.8 %
The major reasons for the extension of time granted were:
Due to flood & increase height of under-ground water during summer granted 125 days
which has (125/276)*100=45.3 % from the total granted days.
Late due to demolish up to re-constructing of shade for backing injera granted 11 days
which has (61/276)*100=22.1 % from the total granted days.
Design change for footing from mat to isolated pad granted 36 days which has
(36/276)*100=13.1% from the total granted days.
4.3.5. Case Study-5
Project Name: Sports Academy Finishing
Client: Bahir dar University
Consultant: B.U.D.S.W.S
Contractor: Gad Construction Plc.
Site hand-over date: 21/09/2006E.C
Mobilization: 21 days
Total Contract days: 540 days
Commencement date: 13/10/2006 E.C
Date of completion: 02/04/2008E.C
Days extended due t variation works: 108
Days granted before variation: 878
Total extended days: 996
Days currently requested: 263 days
76
Days currently approved: 173 days Total project days: 1709 days
Table 4-20: Case Study-5 for EoT
s.n Justification for Request R G Justification for Approval
01 Late in fixing & displacing of
telecommunication pole and
incinerator store
29 29 October planned work is
3,751,950.63 Executed work is
104,982.15
3,751,950.63−104,982.15
3,751,950.63 * 30 = 29 days
02 Same case to the above 25 25 November planned work is
1,593,846.33 Executed work is
256,392.42
1,593,846.33−256,392.42
1,593,846.33 * 30 = 25 days
03 Same case 30 30 December planned work is
9,211,845.59 Executed work is 0.00
9,211,845.59−0.00
9,211,845.59 * 30 = 30 days
04 Same case 29 29 January planned work is
8,976,265.57 Executed work is
226,961.23
8,976,265.57−226,961.23
8,976,265.57 * 30 = 29 days
05 Same case 30 30 February planned work is
15,981,686.34 Executed work is
254,620.89
15,981,686.34−254,620.89
15,981,686.34 * 30 = 30 days
06 Due to security problem during
graduation week
5 -
07 Late in possession of the site 85 -
08 Delay in material delivery
from abroad and delay in
payment
29 29 March planned work is 2,143,257.59
Executed work is 105,130.99
2,143,257.59−105,130.99
2,143,257.59 * 30 = 29 days
09 Delay in material delivery
from abroad and delay in
payment
30 30 April planned work is 5,772,216.51
Executed work is 9,248
5,772,216.51−9,248
5,772,216.51 * 30 = 30 days
10 Delay in material delivery
from abroad and delay in
30 30 May planned work is 14,285,430.26
Executed work is 279,297
77
payment 14,285,430.26−279,297
14,285,430.26 * 30 = 30 days
11 Delay in material delivery
from abroad and delay in
payment
30 25 June planned work is 11,326,057.6
Executed work is 0.00
11,326,057.6−0.00
11,326,057.6 * 30 = 25 days
12 Delay in material delivery
from abroad and delay in
payment
30 25 July planned work is 1,911,437.49
Executed work is 337,000.05
1,911,437.49−337,000.05
1,911,437.49 * 30 = 25 days
Total Days 382 282
Analysis of Case Study-5
From the above case Study-5 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 1709 days
Total number of days requested by the contractor was 382 days
Percentages (%) of days requested to total project days= (382/1709)*100=22.4 %
Total number of days approved by the contractor was 282 days
Percentages (%) of days approved to total project days= (282/1709)*100=16.5 %
The major reasons for the extension of time granted were:
Late in fixing & displacing of telecommunication pole and incinerator store granted 143
days which has (143/282)*100=50.7 % from the total granted days.
Delay in material delivery from abroad and delay in payment granted 139 days which has
(139/282)*100=49.3 % from the total granted days.
4.3.6. Case Study-6
Project N: Library Building (Poly Lot II)
Client: Bahir dar University
Consultant: B.U.D.S.W.S
Contractor: Gad Construction Plc.
Site hand-over date: 14/02/2005E.C
Mobilization: 21 days
Total Contract days: 475 days
Commencement date: 06/03/2005 E.C
Date of completion: 26/06/2006E.C
Days extended due t variation works: 369
Days granted before variation: 1186
Total extended days: 1556
78
Days currently requested: 330 days
Days currently approved: 76 days
Total project days: 2106 days
Table 4-21: Case Study-6 for EoT
s.n Justification for Request R G Justification for Approval
01 Additional works for compound
water supply installation
60 - Granted before on this issue
02 Late supply of water supply line
drawing
180 76 Granted 76 days by deduction of
executed work days 13 days from
10/02/2010-8/5/2010 E.C , 89 days
3,084,354.64∗475
113,291,239.75 * 30 days= 13 days
03 Additional works for ditch
cover & Main building entrance
aluminum guard rail
90 - The case will be seen during actual
work accomplished
Total Days 330 76
Analysis of Case Study-6
From the above case Study-6 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 2106 days
Total number of days requested by the contractor was 330 days
Percentages (%) of days requested to total project days= (330/2106)*100=15.7 %
Total number of days approved by the contractor was 76 days
Percentages (%) of days approved to total project days= (76/2106)*100=3.6 %
The major reason for the extension of time granted was:
Late supply of water supply line drawing granted 76 days which has (76/76)*100=100 %
from the total granted days.
79
4.3.7. Case Study-7
Project N: Eth. Maritime training center
Client: Bahir Dar University
Consultant: B.U.D.S.W.S
Contractor: Gad Construction Plc.
Site hand-over date: 20/10/2003E.C
Mobilization: 21 days
Total Contract days: 180 days
Commencement date: 10/11/2003 E.C
Date of completion: 04/05/2004E.C
Days extended due t variation works: 67
Days granted before variation: 227
Total extended days: 294
Days currently requested: 1634 days
Days currently approved: 1058 days
Total project days: 1532 days
Table 4-22: Case Study-7 for EoT
s.n Justification for Request R G Justification for Approval
01 Additional works for boat slipway 75 75
02 for acceleration work of the hall 71 71
03 For d/t variation & additional
works
243 15
04 Roof slab design problem 320 269
05 Additional works for procurement,
supply, and installation for
generator
800 628
Total Days 1526 1058
Analysis of Case Study-7
From the above case study-7 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 1532 days
Total number of days requested by the contractor was 1526 days
Percentages (%) of days requested to total project days= (1526/1532)*100=99.6 %
Total number of days approved by the contractor was 1058 days
Percentages (%) of days approved to total project days= (1058/1532)*100=69.1 %
80
The major reasons for the extension of time granted were:
Additional works for procurement, supply, and installation for generator granted 628 days
which has (628/1058)*100=59.4 % from the total granted days.
Roof slab design problem granted 269 days which has (269/1058)*100=25.4 % from the
total granted days.
Additional works for boat slipway granted 75 days which has (75/1058)*100=70.9 % from
the total granted days.
4.3.8. Case Study-8
Project N: BiT Workshop & Laboratory
Client: Bahir Dar University
Consultant: B.U.D.S.W.S
Contractor: Flintstone Engineering
Site hand-over date: 06/08/2010 E.C
Mobilization: 21 days
Total Contract days: 730 days
Commencement date: 27/08/2010 E.C
Date of completion: 26/08/2012 E.C
Days extended due to t variation works: -
Days granted before variation: -
Total extended days: -
Days currently requested: 411 days
Days currently approved: 295 days
Total project days: 1025 days
Table 4-23: Case Study-8 for EoT
s.n Justification for Request R G Justification for Approval
01 Late possession of the site 21 21
02 Late for advance payment 96 30
03 Late in design change for FFL 9 9
04 Late in 2nd & 3rd advance payment
and possession of the site
256 215
05 Late in possession of the site 29 20
Total Days 411 295
81
Analysis of Case Study-8
From the above case study-8 the researcher tried to analyze the major reasons for the
contractors' requested days and consultants' approved days.
Total project days are 1025 days
Total number of days requested by the contractor was 411 days
Percentages (%) of days requested to total project days= (411/1025)*100=40.1 %
Total number of days approved by the contractor was 298 days
Percentages (%) of days approved to total project days= (298/1025)*100=29.1 %
The major reasons for the extension of time granted were:
Late in 2nd & 3rd advance payment and possession of the site granted 215 days which has
(215/295)*100=72.9 % from the total granted days.
Late for advance payment granted 30 days which has (30/295)*100=10.2 % from the total
granted days.
Late possession of the site granted 21 days which has (21/295)*100=7.1 % from the total
granted days.
82
4.3.9. Summary of the Major Reasons for Granted of Extension of Time Case Studies
In this thesis the researcher tried to analyze the major reasons for granted of EoT from
Case-study documents in which contractor’s requested and consultant’s approved based
on the cases.
Table 4-24: Summary of the Major Reasons for Granted of Extension of Time Case
Studies
The Major Reasons for Granted of Extension of Time in Case Studies
Case-Study 1 1
Late material delivery of sub-contractor and foreign
currency exchange problems
Case-Study 2 1 Additional works for fence work
2 Change order for modification works
3 Late instructions for finishing materials
Case-Study 3 1 Force majeure due to political un-rest
2 Late instruction regarding fashion hole roof plan
3 Late possession of right of way problems
Case-Study 4 1 Force majeure due to flood
2 Late possession of site
3 Design change for footing pad
Case-Study 5 1 Late possession of site
2 Delayed payment
Case-Study 6 1 Late supply of water supply line drawing
Case-Study 7 1 Additional works for generator work
2 Late re-design of roof slab
3 Additional works for boat slip way
Case-Study 8 1 Late in 2nd & 3rd advance payment and late
possession of site
2 Late advance payment
3 Late possession of site
83
Table 4-25: Frequency of Major Reasons for Granted of Extension of Time Case Studies
No. Major Reasons Frequency Rank
1 Force Majeure 3 3
2 Additional Works 3 3
3 Change Order and Modification 2 4
4 Late Instruction/ Drawing 4 2
5 Late Possession of Site 5 1
6 Delayed Payment 3 3
The above table 4-25 showed the major reasons by using frequency of major reasons for
granted of extension of time in case-studies are late possession of site, late instruction/
drawing and additional works in ranked order for 1st, 2nd and 3rd respectively.
84
4.4. Case - Study on Liquidated Damage
In this thesis all seven liquidated damage case studies collected from on-going and
finished Bahir Dar University Building Construction Projects and the main aim of the
case-studies was have concerning with practice and implementation of liquidated damage
clauses when projects are delay due to contractor’s fault.
4.4.1. Case Study-1 for Liquidated Damage
Project Detail/ Description
Project Name Medical Faculty Lot III
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor Yencomad Construction Plc.
Date of Contract Signature Feb, 13th/2014 GC.
Main Contract Amount 179,124,257.60 ETB
Supplementary Contract 303,755,759.24 ETB
Variation Work Amount 20,711,660.41 ETB
Total Contract Sum 503,591,677.25 ETB
Total Executed Work including VAT (15%) 256,878,434.10
Un-justified delay days 3.77 days
Liquidated Damage/Penalty Amount 901,763.76 ETB
85
4.4.2. Case Study-2 for Liquidated Damage
Project Detail/ Description
Project Name Class Room & Laboratory
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor Orbit Engineering & Construction Plc.
Date of Contract Signature March, 4th/2006 EC.
Main Contract Amount 66,783,018
Supplementary Contract
Variation Work Amount 5,336,828.22
Total Contract Sum 72,119,847.18
Total Executed Work including VAT (15%) 60,257,159.28
Un-justified delay days 144 days
Liquidated Damage/Penalty Amount 1,711,825.08 ETB
4.4.3. Case Study-3 for Liquidated Damage
Project Detail/ Description
Project Name Class Room & Laboratory
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor ETETE Construction Plc.
Date of Contract Signature Dec, 19th/2016 GC.
Main Contract Amount 67,942,872.3
Supplementary Contract 14,549,328.77
Variation Work Amount 47,0834.19
Total Contract Sum 87,200,548.26
Total Executed Work including VAT (15%) 60,486,947.36
Un-justified delay days 33 days
Liquidated Damage/Penalty Amount 881,488.76 ETB
86
4.4.4. Case Study-4 for Liquidated Damage
Project Detail/ Description
Project Name Medical Faculty Lot III
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor Yencomad Construction Plc.
Date of Contract Signature Dec, 13th/2014 GC.
Main Contract Amount 179,124,257.6
Supplementary Contract 303,755,759.24
Variation Work Amount 20,711,660.41
Total Contract Sum 503,591,677.25
Total Executed Work including VAT (15%) 275,308,606.38
Un-justified delay days 3.6 days
Liquidated Damage/Penalty Amount 807,272.55 ETB
4.4.5. Case Study-5 for Liquidated Damage
Project Detail/ Description
Project Name Medical Faculty Lot IV
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor T/ Birhan Ambaye Construction Plc.
Date of Contract Signature August, 12th/2015 GC.
Main Contract Amount 228,081,790.06
Supplementary Contract 41,100,116.61
Variation Work Amount 6,016,519.90
Total Contract Sum 275,198,426.57
Total Executed Work including VAT (15%) 203,524,966.73
Un-justified delay days 42.5 days
Liquidated Damage/Penalty Amount 3,043,912.21 ETB
87
4.4.6. Case Study-6 for Liquidated Damage
Project Detail/ Description
Project Name Medical Faculty Lot V- Laboratory
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor SATCON Construction Plc.
Date of Contract Signature Oct, 06th/2009 GC.
Main Contract Amount 423,406,631.10
Supplementary Contract
Variation Work Amount
Total Contract Sum 423,406,631.10
Total Executed Work including VAT (15%) 238,591,490.87
Un-justified delay days 1.4 days
Liquidated Damage/Penalty Amount 264,394.47 ETB
4.4.7. Case Study-7 for Liquidated Damage
Project Detail/ Description
Project Name Eitex Lot VII
Client Bahir Dar University
Consultant B.U.D.S.W.S
Contractor FE Construction Plc.
Date of Contract Signature Dec, 19th/2016 GC.
Main Contract Amount 379,304,070.31
Supplementary Contract
Variation Work Amount 12,588,159.81
Total contract Sum 391,892,230.12
Total Executed Work including VAT (15%) 269,435,845.06
Un-justified delay days 1.1 days
Liquidated Damage/Penalty Amount 126,973.08 ETB
88
4.4.8. Sample Calculation for Liquidated Damage/ Penalty Amount for Case-Studies
Example
To clarify the above case-studies for liquidated damage/ penalty amount the researcher
tried to show up by using case-study 7 as an example in the following manner.
Liquidated Damage/ Penalty Amount = 0.1% * 1.1 *
(391,892,230.12 - 269,435,845.06)
Liquidated Damage/ Penalty Amount = 126,973.08 ETB
Liquidated Damage/ Penalty Amount = 0.1%* Un-justified delay days *
(Total Contract Sum-Total Executed Work including VAT (15%))
…………………………………………………………………………………..Eqn. 2
89
4.4.9 Summery of BDU Projects that Attracted Liquidated Damage
Table 4-26: Summery of BDU Projects that Attracted Liquidated Damage
Project Name Contractor Consultant Contract Sum Value of Liquidated
Damage Imposed
% of liquidated
damage from
Contract Sum
Reasons for Imposition of
Liquidated Damage
Medical
Faculty Lot III
Yencomad
Construction Plc.
B.U.D.S.W.S 179,124,257.60 ETB 901,763.76 ETB 0.51% Delays and Late Completion
Class Room &
Laboratory
Orbit Engineering
& Construction
Plc.
B.U.D.S.W.S 72,119,847.18 ETB 1,711,825.08 ETB 2.34% Delays and Late Completion
Class Room &
Laboratory
ETETE
Construction Plc.
B.U.D.S.W.S 87,200,548.26 ETB 881,488.76 ETB 1.01% Delays and Late Completion
Medical
Faculty Lot III
Yencomad
Construction Plc.
B.U.D.S.W.S 503,591,677.25 ETB 807,272.55 ETB 0.16% Delays and Late Completion
Medical
Faculty Lot IV
T/Birhan Ambaye
Construction Plc.
B.U.D.S.W.S 275,198,426.57 ETB 3,043,912.21 ETB 1.1% Delays and Late Completion
Medical
Faculty Lot V-
Laboratory
SATCON
Construction Plc.
B.U.D.S.W.S 423,406,631.10 ETB 264,394.47 ETB 0.06% Delays and Late Completion
Eitex Lot VII FE Construction
Plc.
B.U.D.S.W.S 391,892,230.12 ETB 126,973.08 ETB 0.03% Delays and Late Completion
90
4.4.10. Analysis of Liquidated Damage Case-Studies
In this thesis the researcher tried to analyze the liquidated damage practice and
implementation in Bahir Dar University building projects. During documentation review
there is a clause concerning liquidated damage included in special condition of the
contract documents stated under both PPA, 2006 (in clause, 49 Liquidated Damages) and
FPPA, 2011 (in clause under clause, 27 Liquidated Damages ).
During documentation review the researcher got 7 building projects which are attracted
liquidated damage because of projects were delayed from approved program schedule and
summarized in the above table. The estimation practice was by using the following
formula which stated in contract agreement document.
Where
Un-justified Delayed Days= days which the project has been delayed because of
contractor’s default
Total Contract Sum= is the total project contract amount
Total Executed work including VAT (15%) = is the executed work amount until project
delayed days
Liquidated Damage/ Penalty Amount = 0.1%* Un-justified delay days *
(Total Contract Sum-Total Executed Work including VAT (15%))
…………………………………………………………………………………..Eqn. 2
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4.4.11. Correlating the Questionnaire and Case Study Findings
Concerning the practice of contract management principles for the liquidated damage in
questionnaire the respondents agreed that (88.9%) there is an inclusion of liquidated
damage in their construction contracts. In case studies the researcher tried to assessed
weather or not the construction contracts contain liquidated damage in their contract and
got 7 delayed projects with implementation of liquidated damage/ penalty amount and the
client (BDU) collected a compensation for the project delay due to the contractors default.
Concerning to organizations that follow an established cost-estimating technique/
methodology in preparing liquidated damage; most of the respondents’ clearly stipulated
they follow an established way which is stated in both PPA, 2006 and FPPA, 2011 (in
clause “in clause, 49 Liquidated Damages” and “in clause under clause, 27 Liquidated
Damages” respectively) for estimating and in case-studies, the researcher checked how the
way consultants estimated the liquidated damage/ penalty amount by using the formula
stated in contract document.
The questionnaire respondents stated, the major reasons for project delay that could justify
extension of time were ranked late instructions or drawing, delay in giving possession of
site and exceptionally inclement weather respectively. In case-studies, the main reasons
for project delay that could justify extension of time were ranked late instructions or
drawing, late possession of site and additional works respectively.
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CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS
This chapter contains conclusions, recommendations and recommended further study.
Conclusions constitute the recapitulative of major findings from the study and analysis of
case-studies, linking them to the objectives of the research study. Recommendation
section highlights the practical implications of the study and suggests further research
studies.
5.1. Conclusions
To achieve the stated objectives, the research adopted case studies coupled with
questionnaire survey as research instruments. The information gathered from the survey
was analyzed using the relative importance index and the reliability of the questionnaire
was ensured by testing with the Cronbach's co-efficient alpha through SPSS 21.
Based on the analysis and discussion results the following conclusions are derived and
summarized in accordance with the research's objectives.
1. The types of contractor’s cost claims related to project prolongation are extended and
increased site costs (site overheads or preliminaries), head office overhead cost,
inefficiency/ lost productivity cost, financial charges and interest, inflation, loss of
profit/ opportunity cost and claim preparation costs. The difficulty level in estimating
prolongation cost claim both financial charges and interest and claim preparation costs
are in the 1st rank, on the other hand inflation, head office overhead cost and loss of
profit/ opportunity cost are in rank 2nd, 3rd and 4th respectively.
2. The major reasons for contractors working in Bahir Dar University building projects
of extension of time claims submissions are force majeure, exceptionally inclement
weather, late instructions or drawings, delay in the supply of materials and goods by
the employer, testing and inspection and delay in giving possession of site. From these
reasons late instructions or drawing is in the 1st rank, delays in possession of site,
exceptionally inclement weather are in the 2nd rank and 3rd rank respectively.
93
3. In Bahir Dar University liquidated damage clause is included in contract document
and implemented for projects delayed from their intended project completion dates due
to contractors default. The calculation for a liquidated damage is based on stated in
special condition agreement.
4. Liquidated damage clause is the most common mechanism used in Bahir Dar
University building projects to compensate the Owner for losses caused by delays that
are the fault of the contractor.
5.2. Recommendations
1. Contractors should give a big concern about their documentation and
record keeping system at project sites. It is seen in the research that, there
exist a problem of documentation and poor record keeping system to justify
their claim requests. Site diaries, weather condition reports, material approval
slips and site minutes shall be kept properly at project sites.
2. Contractors should allocate claim expertise and contract engineer to handle any claim
related issues and to administer record keeping of projects. In addition; every written
record shall be changed into soft copy and stored in computer data base system.
3. Consultants need to work to achieve timely response for issues forwarded from the
Contractor and they should resolve unsettled right of way problem and design issues
before construction bid floats besides they should experience granting time extension
even the cause was their office.
4. Consultant should work on drawing carefully and on timely approval to eliminate
design discrepancies and errors.
5. Client should finalize the project’s design before commencement of the works and
should not make changes to the project unless it is absolutely essential.
6. Client should provide the right of way and has to furnish and deliver the site to the
contractor on time. Before the construction starts the client has to fulfill all the
necessary requirements for delivering the site. Failure to deliver the site will cause
time and cost overrun.
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5.3. Future Study
A potential link between the standard of construction planning and the ability to obtain
extension of time and/or succeed in successfully prosecuting a delay claim.
The effect of proper documentation management in administering Extension of Time
and prolongation Cost claims.
Determine or estimate percentage rate of Prolongation Cost as that of liquidated
damage for a contractor.
95
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APPENDIX-1: QUESTIONNAIRE
BAHIR DAR UNIVERSITY
BAHIR DAR INSTITUTE OF TECHNOLOGY
Degree of Masters of Science in Civil Engineering
(Construction Technology and Management)
Dear Sir/Madam Date: ………………………
I am Ephrem Tilahun student of a master’s degree at Bahir Dar University Institute of
Technology Faculty of Civil Engineering in the specialization of Construction Technology
and Management. Now I am working for my thesis work for the requirement of master’s
degree graduation on the topic of “Practice and Implementation of Prolongation Cost
Claim, Liquidated Damage and Extension of Time in Public Building Construction
Projects: (A case Study on Bahir Dar University Building projects)”.
To complete my thesis work there is data needed from your organization so that your
contribution has valued the research. Thank you for your contribution.
Section A: Respondents General Information
Section B: Questions Related with Liquidated Damage
Section C: Questions Related with Prolongation Cost
Section D: Questions Related with Extension of Time
Student Name: Ephrem Tilahun
Advisor : Ahmed Mohamed….(PhD)
Co-advisor : Rahel Ayalew……...(MSc)
Your response, in this regard, is highly valuable and contributory to the outcome of
the research. Thank you for your invaluable time and cooperation in advance.
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Section-A
Respondents General Information
1. Which side you are working for?
Contractor Consultant Client
2. Gender Male Female
3. What is your job position in the company?
Project manager Site Engineer Office Engineer Resident
Engineer
4. What is your Professional Experience?
0-5 years 5-10 years 10-15 years 15 years and above
5. What is your educational qualification?
Diploma BSc MSc PhD
Section-B
Questions related to Liquidated Damage
1. Which of the following test of Liquidated Damage is easy to satisfy;
Please tick the following 1: Most easy, 2: Easy, 3: Fairly easy and 4: Not easy.
No Factors that prevent the application of Liquidated
Damage
1 2 3 4
1 The parties must intend to liquidate (i.e. stipulate to the
amount) the damages in advance
2 The damages anticipated as a result of the contract breach
(such as a contractor’s delay must be uncertain in amount
or difficult to prove
3 The amount stipulated must be reasonable, that is to say,
not greatly disproportionate to the anticipated loss or injury
(Estimates)
2. As an alternative to Liquidated Damages, what would you recommend for parties
to a contract in the event of delays? (Please rank them using the scale from; 1-
Least recommended, 2- Merely recommended, 3- recommended, 4 – More
recommended)
Liquidated Damage in this research refers to the cost compensation for employer due
to project delay resulting from contractor’s default.
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No Alternatives to enhance the enforcement of the Liquidated
Damage clause.
Ranking
1 Insurance against losses
2 Bonus clause for early completion
3 Suing the contractor for the damages suffered
4 Determination / Termination of contracts and retender
3. How would liquidated damages clauses in building construction contracts impact on
building construction? (Please tick the following, [1]: Not at all [2]: Slightly
[3]: Moderately [4]: Very [5]: Extremely)
No Possible impacts of the application of Liquidated
Damage
1 2 3 4 5
1 Promote timely project completion
2 Reduce rampant unapproved delays of projects
3 Improve project performance with respect to time
4 Lead to intimidated and apprehension of building
contractors prior to entering into contract agreements
4. How are the following contract management principles practiced in your project
concerning Liquidated Damage?
No Effective contract management principles concerning LD. Yes No
1 Inclusion of Liquidated Damage clause in building construction contracts
2 Deduction of Liquidated damage when there is a delay by the contractor
3 Granting of EOT when there is a delay not due to the client’s organization
4 Repayment of Liquidated Damage, when EOT is granted subsequently
5. Has your Liquidated Damage provision ever been challenged in court?
Yes No
6. Does your organization follow an established cost estimating
technique/methodology in preparing Liquidated damage estimates?
Yes No
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Section-C
Questions related to Prolongation Cost Claims
1. How do you level the occurrence of prolongation cost claim in building
construction projects?
Most Frequent Frequent Least Frequent
No Occurrence
2. How clear and understandable are the concepts and ideas presented in the clauses
of the conditions of contract currently used in handling prolongation cost claim?
Very Good Good Neutral Fair Poor
3. How do you level the difficulty in estimating prolongation cost for the cost claims
listed below; please level them as per the degree of difficulty to estimate?
1: Very difficult 2: Difficult 3: Easy 4: Very easy
No. List of cost claims 1 2 3 4
1 Extended and Increased Site Costs ; (Site Overheads or Preliminaries)
2 Head office overhead cost
3 Inefficiency/ Lost productivity cost
4 Financial Charges and Interest
5 Inflation
6 Loss of Profit/Opportunity cost
7 Claim Preparation Costs
Section-D
Questions related to project delay Extension of Time claims
1. In your opinion what is the average delay in the project you have been exposed to?
5-10% 11-15% 16-20% Above 21%
Prolongation cost in this research refers to the cost incurred by the
contractor due to prolonged time period (delay) resulting from employer risk events.
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2. What action do you take when you realize that your project is getting delayed?
Ask for Extension of Tim Recapitalize the project
Employ more resources Change the structural organization
Sub-contract the works Request for changes of scope and obligation
3. Is there a record-keeping system that documents all correspondence that has been
issued and received in the project you worked on?
Yes No Not applicable
4. Do you feel that proper documents and record-keeping systems can reduce claim
numbers and help to solve disputes?
Yes No Not applicable
5. Have you lost your entitlement to a claim due to improper documentation and
record-keeping system?
Yes Not Not applicable
6. What type of claim did your most recent or current project face? (More than one
choice can be selected).
Extension of Time Claims Prolongation Claims
Acceleration Claim Other/ please specify……………………..
7. In your opinion, please rate the significant reasons for the delay in which an
extension of time may be given. [1] Never [2] Sometimes [3] Often [4] Very
Often
No Reasons That Could Justify Extension of Time 1 2 3 4
1 Force majeure
2 Exceptionally inclement weather
3 Late instructions, drawings or level
4 Delay in the supply of materials and goods by the employer
5 Testing and inspection
6 Delay in giving possession of the site
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8. Based on your experiences, what are the common mistakes by the contractor
during the request of extension of time?
[1] Never [2] Sometimes [3] Often [4] Very Often
No Common Mistakes 1 2 3 4
1 Late or lack of notice from the contractor
2 Failure to recognize delay or failure to describe the cause of
delay
3 Failure to state the date when delay commenced and the period
of delay
4 Poor presentation of the application to show how the progress of
the work has been delayed
5 Lack of proper baseline schedule
6 Lack of proper site records and particulars relied upon
7 Insufficient quality of information (Information is not kept and
not updated)
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APPENDIX-2: CLAUSES IN FIDIC MDB, 2010 CONCERNING WITH
EXTENSTION OF TIME AND PROLONGATION COST CLAIMS
A. Delayed Drawings or Instructions
In FIDIC MDB 2010 Clause, 1.9 stated issues in delayed drawings or instructions, if the
Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer ….the
Contractor shall give further notice to the Engineer and shall be entitled subject to Sub-
Clause 20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion]
b) Payment of any such Cost plus profit, which shall be included in the Contract Price.
B. Right of Access to the Site
In Clause 2.1 mentioned the contractor’s right to access to the site, if the Contractor
suffers delay and/or incurs Cost as a result of a failure by the Employer to give any such
right or possession within such time, the Contractor shall give notice to the Engineer and
shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost plus profit, which shall be included in the Contract Price.
C. Setting Out
In Clause 4.7 stated about setting out if the Contractor suffers delay and/or incurs Cost
from executing work which was necessitated by an error in these items of reference, and
an experienced contractor could not reasonably have discovered such error and avoided
this delay and/or Cost, the Contractor shall give notice to the Engineer and shall be
entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost plus profit, which shall be included in the Contract.
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D. Unforeseeable Physical Conditions
Under Clause 4.12 stated about unforeseeable physical conditions ( a contractor encounter
excluding climatic conditions), If and to the extent that the Contractor encounters physical
conditions which are unforeseeable, gives such a notice, and suffers delay and/or incurs
Cost due to these conditions, the Contractor shall be entitled subject to notice under Sub-
Clause 20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost, which shall be included in the Contract Price.
E. Testing
In Clause 7.4 If the Contractor suffers delay and/or incurs Cost from complying with these
instructions or as a result of a delay for which the Employer is responsible, the Contractor
shall give notice to the Engineer and shall be entitled subject to Sub- Clause 20.1
[Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost plus profit, which shall be included in the Contract Price.
F. Rejection of tests
Under Clause 7.5 stated as if the Engineer requires this Plant, Materials or workmanship
to be retested, the tests shall be repeated under the same terms and conditions. If the
rejection and retesting cause the Employer to incur additional costs, the Contractor shall
subject to Sub-clause 2.5 [Employer’s Claims] pay these costs to the Employer.
G. Remedial Work
In Clause 7.5 mentioned if the Contractor fails to comply with the instruction; the
Employer shall be entitled to employ and pay other persons to carry out the work. Except
to the extent that the Contractor would have been entitled to payment for the work, the
Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay to the Employer all
costs arising from this failure.
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H. Extension of Time for Completion
Under Clause 8.4 listed out the issues the Contractor shall be entitled subject to Sub-
Clause 20.1 [Contractor’s Claims] to an extension of the Time for Completion if and to
the extent that completion for the purposes of Sub-Clause 10.1 [Taking-Over of the Works
and Sections] is or will be delayed by any of the following causes:
a) A Variation (unless an adjustment to the Time for Completion has been agreed under
Sub-Clause 13.3 [Variation Procedure]) or other substantial change in the quantity of
an item of work included in the Contract,
b) A cause of delay giving entitlement to an extension of time under a Sub-Clause of
these Conditions,
c) Exceptionally adverse climatic conditions,
d) Unforeseeable shortages in the availability of personnel or Goods caused by an
epidemic or governmental actions, or
e) Any delay, impediment or prevention caused by or attributable to the Employer, the
Employer’s Personnel, or the Employer’s other contractors.
I. Delays Caused by Authorities
In Clause 8.5 stated if the following conditions apply, namely:
a) The Contractor has diligently followed the procedures laid down by the relevant
legally constituted public authorities in the Country,
b) These authorities delay or disrupt the Contractor’s work, and
c) The delay or disruption was Unforeseeable,
Then this delay or disruption will be considered as a cause of delay under sub-paragraph
(b) of Sub-Clause 8.4 [Extension of Time for Completion].
J. Rate of progress
Under Clause 8.6 if the revised methods cause the Employer to incur additional costs, the
Contractor shall subject to notice under Sub-Clause 2.5 [Employer’s Claims] pay these
costs to the Employer, in addition, to delay damages (if any) under Sub-Clause 8.7 below.
“Additional costs of revised methods including acceleration measures, instructed by the
Engineer to reduce delays resulting from causes listed under Sub-Clause 8.4 [Extension of
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Time for Completion] shall be paid by the Employer, without generating, however, any
other additional payment benefit to the Contractor”.
K. Delay Damages
In Clause 8.7 stated, “If the Contractor fails to comply with Sub-Clause 8.2 [Time for
Completion], the Contractor shall subject to notice under Sub-Clause 2.5 [Employer’s
Claims] pay delay damages to the Employer for this default”. These delay damages shall
be the sum stated in the Contract Data, which shall be paid for every day which shall
elapse between the relevant Time for Completion and the date stated in the Taking-Over
Certificate. However, the total amount due under this Sub-Clause shall not exceed the
maximum amount of delay damages (if any) stated in the Contract Data.
These delay damages shall be the only damages due from the Contractor for such default,
other than in the event of termination under Sub-Clause 15.2 [Termination by Employer]
prior to completion of the Works. These damages shall not relieve the Contractor from his
obligation to complete the Works, or from any other duties, obligations or responsibilities
which he may have under the Contract.
L. Consequences of Suspension
Under Clause 8.9 stated if the Contractor suffers delay and/or incurs Cost from complying
with the Engineer’s instructions under Sub-Clause 8.8 [Suspension of Work] and/or from
resuming the work, the Contractor shall give notice to the Engineer and shall be entitled
subject to Sub-Clause 20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost, which shall be included in the Contract Price.
Further, this condition of contract pointed out that, the Contractor shall not be entitled to
an extension of time for, or to payment of the Cost incurred in, making good the
consequences of the Contractor’s faulty design, workmanship or materials, or of the
Contractor’s failure to protect, store or secure in accordance with Sub-Clause 8.8
[Suspension of Work].
M. Payment for Plant and Materials in Event of Suspension
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Clause 8.10 stated the Contractor shall be entitled to payment of the value (as at the date
of suspension) of Plant and/or Materials which have not been delivered to Site, if:
a) The work on Plant or delivery of Plant and/or Materials has been suspended for more
than 28 days, and
b) The Contractor has marked the Plant and/or Materials as the Employer’s property in
accordance with the Engineer’s instructions.
N. Adjustments for Changes in Legislation
Under Clause 13.7 pointed out If the Contractor suffers (or will suffer) delay and/or incurs
(or will incur) additional Cost as a result of these changes in the Laws or in such
interpretations, made after the Base Date, the Contractor shall give notice to the Engineer
and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost, which shall be included in the Contract Price.
This contract condition further pointed out that, notwithstanding the foregoing, the
Contractor shall not be entitled to an extension of time if the relevant delay has already
been taken into account in the determination of a previous extension of time and such Cost
shall not be separately paid if the same shall already have been taken into account…the
provisions of Sub-Clause 13.8 [Adjustments for Changes in Cost].
O. Delayed Payment
Clause 14.8 stated as, if the Contractor does not receive payment in accordance with Sub-
Clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges
compounded monthly on the amount unpaid during the period of delay. This period shall
be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment],
irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim
Payment Certificate is issued.
Unless otherwise stated in the Particular Conditions, these financing charges shall be
calculated at the annual rate of three percentage points above the discount rate of the
central bank in the country of the currency of payment, or if not available, the interbank
110
offered rate, and shall be paid in such currency. The Contractor shall be entitled to this
payment without formal notice or certification, and without prejudice to any other right or
remedy.
P. Contractor’s Entitlement to Suspend Work
Clause 16.1 mentioned if the Contractor suffers delay and/or incurs Cost as a result of
suspending work (or reducing the rate of work) in accordance with this Sub-Clause, the
Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause
20.1 [Contractor’s Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) Payment of any such Cost plus profit, which shall be included in the Contract Price.
Q. Consequences of Force Majeure
Under Clause 19.4 of these conditions of contract stated about consequences of force
majeure that, if the Contractor is prevented from performing its substantial obligations
under the Contract by Force Majeure of which notice has been given under Sub-Clause
19.2 [Notice of Force Majeure], and suffers delay and/or incurs Cost by reason of such
Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s
Claims] to:
a) An extension of time for any such delay, if completion is or will be delayed, under
Sub-Clause 8.4 [Extension of Time for Completion], and
b) If the event or circumstance is of the kind described in sub-paragraphs (i) to (iv) of
Sub-Clause 19.1 [Definition of Force Majeure] and, in the case of subparagraphs (ii) to
(iv), occurs in the Country, payment of any such Cost, including the costs of rectifying
or replacing the Works and/or Goods damaged or destroyed by Force Majeure, to the
extent they are not indemnified through the insurance policy referred to in Sub-Clause
18.2 [Insurance for Works and Contractor’s Equipment].
APPENDIX-3: CERTIFICATE OF PAYMENT OF LIQUIDATED
DAMAGE PAYMENT
111
112
APPENDIX-4: EXTENSION OF TIME CLAIMED AND APPROVED
DOCUMENTS
113
114
APPENDIX-5: QUSTIONNAIRE RESPONDENT’S RII VALUES OF RESPONSES
Factors Client Consultant Contractor Overall
1) Easy to Testify LD RII Rank RII Rank RII Rank RII Rank
The parties must intend to liquidate 0.42 2 0.73 1 0.56 3 0.57 3
The damages anticipated as a result of the contract breach (such as a
contractor’s delay must be uncertain in amount or difficult to prove)
0.42 2 0.68 2 0.65 1 0.58 2
The amount stipulated must be reasonable, that is to say, not greatly
disproportionate to the anticipated loss or injury (Estimates)
0.58 1 0.66 3 0.6 2 0.61 1
2) Alternatives to enhance the Enforcement of LD
Insurance against losses 0.92 1 0.73 2 0.63 2 0.76 1
Bonus clause for early completion 0.67 2 0.82 1 0.7 1 0.73 2
Suing the contractor for the damages suffered 0.58 3 0.68 3 0.61 3 0.63 3
Determination / Termination of contracts and retender 0.58 4 0.43 4 0.54 4 0.52 4
3) Possible Impacts of LD
Promote timely project completion 0.4 3 0.82 2 0.31 4 0.51 4
Reduce rampant unapproved delays of projects 0.6 2 0.71 3 0.6 3 0.64 3
115
Improve project performance with respect to time 0.73 1 0.87 1 0.71 1 0.77 1
Lead to intimidated and apprehension of building contractors
prior to entering into contract agreements
0.6 2 0.67 4 0.68 2 0.65 2
4) Difficulty Level in Estimating Prolongation Cost
Extended and Increased Site Costs (Site Overheads or
Preliminaries)
0.5 3 0.52 5 0.55 5 0.53 5
Head office overhead cost 0.75 1 0.59 3 0.54 6 0.63 1
Inefficiency/ Lost productivity cost 0.5 3 0.61 2 0.5 7 0.54 4
Financial Charges and Interest 0.58 2 0.68 1 0.62 3 0.63 1
Inflation 0.5 3 0.57 4 0.65 2 0.57 3
Loss of Profit/Opportunity cost 0.58 2 0.57 4 0.56 4 0.57 3
Claim Preparation Costs 0.5 3 0.57 4 0.67 1 0.58 2
5) Reasons for Project Delay that Could Justify EoT
Force majeure 0.83 1 0.57 3 0.58 5 0.66 3
Exceptionally inclement weather 0.67 3 0.48 4 0.69 2 0.62 5
Late instructions, drawings or level 0.75 2 0.82 1 0.8 1 0.79 1
116
Delay in the supply of materials and goods by the employer 0.58 4 0.71 2 0.61 4 0.63 4
Testing and inspection 0.67 3 0.48 4 0.57 6 0.57 6
Delay in giving possession of site 0.67 3 0.68 3 0.65 3 0.67 2
6) Common Mistakes by the Contractor
Late or lack of notice from the contractor 0.83 1 0.71 2 0.67 2 0.74 1
Failure to recognize delay or failure to describe the cause of
delay
0.67 3 0.64 5 0.61 4 0.64 6
Failure to state the date when delay commenced and the
period of delay
0.58 4 0.71 2 0.59 5 0.63 7
Poor presentation of the application to show how the
progress of the work has been delayed
0.75 2 0.73 1 0.54 6 0.67 5
Lack of proper baseline schedule 0.75 2 0.68 4 0.68 1 0.71 4
Lack of proper site records and particulars relied upon 0.83 1 0.73 1 0.64 3 0.73 2
Insufficient quality of information (Information is not kept
and not updated)
0.75 2 0.71 2 0.68 1 0.72 3
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APPENDIX-6: EXCELL CORRELATION COEFFICIENT BETWEEN RESPONDENTS
1 Client Consultant Contractor CL-CT CL-CR CT-CR rs (CL-CT) rs (CL-CR) rs (CT-CR)1 2 1 3 1 1 -1 1 -2 4
2 2 2 1 0 0 1 1 1 1
3 1 3 2 -2 4 -1 1 1 1
d Val. 5 3 6 -0.25 0.25 -0.5
21 1 2 2 -1 1 -1 1 0 0
2 2 1 1 1 1 1 1 0 0
3 3 3 3 0 0 0 0 0 0
4 4 4 4 0 0 0 0 0 0
d Val. 2 2 0 0.8 0.8 1
31 3 2 4 1 1 -1 1 -2 4
2 2 3 3 -1 1 -1 1 0 0
3 1 1 1 0 0 0 0 0 0
4 2 4 2 -2 4 0 0 2 4
d Val. 6 2 8 0.4 0.8 0.2
41 3 5 5 -2 4 -2 4 0 0
2 1 3 6 -2 4 -5 25 -3 9
3 3 2 7 1 1 -4 16 -5 25
4 2 1 3 1 1 -1 1 -2 4
5 3 4 2 -1 1 1 1 2 4
6 2 4 4 -2 4 -2 4 0 0
7 3 4 1 -1 1 2 4 3 9
d Val. 16 55 51 0.89 0.02 0.09
51 1 3 5 -2 4 -4 16 -2 4
2 3 4 2 -1 1 1 1 2 4
3 2 1 1 1 1 1 1 0 0
4 4 2 4 2 4 0 0 -2 4
5 3 4 6 -1 1 -3 9 -2 4
6 3 3 3 0 0 0 0 0 0
d Val. 11 27 16 0.69 0.23 0.54
61 1 2 2 -1 1 -1 1 0 0
2 3 5 4 -2 4 -1 1 1 1
3 4 2 5 2 4 -1 1 -3 9
4 2 1 6 1 1 -4 16 -5 25
5 2 4 1 -2 4 1 1 3 9
6 1 1 3 0 0 -2 4 -2 4
7 2 2 1 0 0 1 1 1 1
d Val. 14 25 49 0.75 0.52 0.13
1) Easy to Testify LD rs (CL-CT) = A correlation coefficient b/n Client and Consultant
2) Alternatives to enhance the Enforcement of LD rs (CL-CR) = A correlation coefficient b/n Client and Contractor
3) Possible Impacts of LD rs (CT-CR) = A correlation coefficient b/n Consultant and Contractor
4) Difficulty Level in Estimating Prolongation Cost d Val= Is the summation of (d value)
5) Reasons for Project Delay that Could Justify EoT 6) Common Mistakes by the Contractor
118
APPENDIX-7: SAMPLE SIZE & TARGET POPULATIONS OF THE STUDY ON-GOING BDU
BUILDING PROJECTS
N
o
Project Name Project
Location,
Contractor Consultant Project Cost Commencement
Date
% of Work
Executed
No. of
Engineers
1 BIT Students dormitory Poly NASEW
construction Plc
BD Consult 180,412.072.57
Birr
10/4/2010 E.C 23.31 4
2 BIT Class Room Poly FE construction
Plc
BD Consult 193,951,403.85
Birr with vat
21/06/2010 E.C 65 5
3 EITEX LOTVII Textile FE construction
Plc
CDSCO 400,088,076.03
with vat
11/05/2009 E.C 78.79 6
4 Workshop & Laboratory Poly Flintstone
Engineering
BD Consult 479,428,282.78
Birr with vat
28/08/2010 E.C 20 5
5 PHD Student dormitory Poly Flintstone
Engineering
CDSCO 252,208,788.87
with vat
13/10/2010 E.C 23 5
6 EITEX LOT III Textile GAD
Construction
CDSCO 219,628,491.79
Birr
27/2/2007 E.C 69 5
7 Lot-VI Assembly hall,
administration andLounge
Textile Berhan Tobiaw CDSCO 190,314,545.35
Birr
70 7
8 Medical Faculty lot 4 Sebatamit Tekeleberhan
Ambaye
BD Consult 275,769,826.06
Birr
19/04/2008 E.C 76.19 5
9 Medical Faculty lot 3
library and cafeteria
Sebatamit Yencomad
construction Plc
BD Consult 505,329,756.55
Birr
17/07/2006 E.C 95 3
10 Medical Faculty lot 3 Sebatamit SATCON BD Consult 500,185.864.03 27/07/2009 E.C 66.54 4
11
11) Bahir Dar University Coordinating Office of Physical Projects Engineers 5
12 To Total Population of Engineers Working in BDU Physical projects 54