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PROLONGATION COST IN EOT CLAIMS

Once a Contractor has secured an extension of time and relief from liquidated

damages, thoughts will quickly turn to recovery of the costs incurred due to

the delayed completion date – i.e. “Prolongation Costs.

!f you ask an "mployer#s $% how such costs should &e determined the answer

is often an unequivocal statement that the rates and prices from the

Preliminaries 'O$ shall &e divided &y the original contract duration and the

derived daily rate for preliminaries shall then &e applied to the extended

duration. (he sharp witted "mployer#s $% may even refine this logic with the

caveat that the 'O$ rates and prices should first &e ad)usted to remove fixed

costs, mo&ili*ation and demo&ili*ation costs, overheads and profit.

 +hilst &oth answers are quite wrong, these approaches are often used in order

to achieve result, despite the inaccurate answer. (he pro&lem is that neither

approach attempts to address the underlying question of what costs losses

 were actually incurred &y the Contractor as a consequence of the delaying

events for which the "mployer was responsi&le. (he answer to this question

cannot &e found in the 'O$, &ut can -and should &e found in a detailed

analysis of the Contractor#s cost records (he express wording of the contract

 will dictate which heads of claim are admissi&le, &ut in general terms an

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accurate understanding of Prolongation Cost entitlement can &e derived &y

application of the following &asic principles/

0Identify the events that gave rise to the extension of time – as it is the cost loss

arising from these events that the Contractor is entitled to recover1

0Identify the point in time that the delay occurred – a common mistake is to

identify the costs that were incurred over the extended duration at the end of

the contract period. (his is incorrect. (he delay may have occurred prior to

full mo&ili*ation and thus the actual costs incurred at that time may &e lower1

-Identify the direct costs that follow from the compensable delay events – the

Contractor is not entitled to costs arising from delay events for which it is

responsi&le. %eparation of the two can defeat arguments that the claim is

glo&al and includes elements of the Contractor#s own culpa&ility1

0Assess only time related costs and not one off capital costs – time related costs

are those which necessarily arise as a consequence of additional time spent on

the pro)ect and would typically include staff salaries1 insurance, rents, utilities,

 &onds, accommodation, office services, car leases 2 running costs, etc. &ut

 would not include purchase costs of offices, photocopiers, vehicles etc.

0Exclude task related costs – a common mistake is to include task related costs

-e.g. la&our, plant hire or scaffolding costs that would have &een incurred in

any event. (hese costs may only have &een incurred at a later point in time

and are therefore not additional. %uch costs would need to &e separately

recovered through a properly formulated disruption cost claim1

0Exclude profit – the purpose of the claim is to put the Contractor &ack into

the position it would have &een, &ut for the delay. 3Profit# is not 3cost# and thus

any claim for profit can only &e &y way of a 3loss of opportunity# claim – which

may &e expressly precluded &y the wording of the contract and would in any

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case have to &e proved, i.e. that opportunities did in fact present themselves

and were refused &ecause key resources could not &e released from the

delayed pro)ect1

0Allow for off-site costs – costs incurred in the Contractor#s head office -and

elsewhere may &e as a direct result of the pro)ect delay. (he fact that these

costs were incurred off site does not mean that the Contractor is not entitled to

receive them1

0If possible, avoid formulae for determining overheads -e.g. 4udson#s, "mden#s

etc. – unless you are a Contractor and you fully understand the &asis of your

3loss of opportunity# claim and how to present it5 'y indentifying actual

incurred overhead costs rather than rely on theory &ased formulae that

commonly produce high assessments1

0Interest / Finance Charges – remem&er that charging interest on a de&t may

 &e prohi&ited in your )urisdiction or &y your contract. 6ost interest or finance

claims suffer from a lack of facts and are commonly/ unsupported, theoretical

assessments of loss. 4owever, a skilled claimant can often find ways to lend

credi&ility to this type of claim.