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.

If you ask an Employers QS how such costs should be determined the answer
is often an unequivocal statement that the rates and prices from the
Preliminaries BOQ shall be divided by the original contract duration and the
derived daily rate for preliminaries shall then be applied to the extended
duration. The sharp witted Employers QS may even refine this logic with the
caveat that the BOQ rates and prices should first be adjusted to remove fixed
costs, mobilization and demobilization costs, overheads and profit.

Whilst both answers are quite wrong, these approaches are often used in order
to achieve result, despite the inaccurate answer. The problem is that neither
approach attempts to address the underlying question of what costs / losses
were actually incurred by the Contractor as a consequence of the delaying
events for which the Employer was responsible. The answer to this question
cannot be found in the BOQ, but can (and should) be found in a detailed
analysis of the Contractors cost records The express wording of the contract
will dictate which heads of claim are admissible, but in general terms an

accurate understanding of Prolongation Cost entitlement can be derived by

application of the following basic principles:

-Identify 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 recover;
-Identify 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. This is incorrect. The delay may have occurred prior to
full mobilization and thus the actual costs incurred at that time may be lower;
-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
responsible. Separation of the two can defeat arguments that the claim is
global and includes elements of the Contractors own culpability;
-Assess 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 project and would typically include staff salaries; insurance, rents, utilities,
bonds, accommodation, office services, car leases & running costs, etc. but
would not include purchase costs of offices, photocopiers, vehicles etc.
-Exclude task related costs a common mistake is to include task related costs
(e.g. labour, plant hire or scaffolding costs) that would have been incurred in
any event. These costs may only have been incurred at a later point in time
and are therefore not additional. Such costs would need to be separately
recovered through a properly formulated disruption cost claim;
-Exclude profit the purpose of the claim is to put the Contractor back into
the position it would have been, but for the delay. Profit is not cost and thus
any claim for profit can only be by way of a loss of opportunity claim which
may be expressly precluded by the wording of the contract and would in any

case have to be proved, i.e. that opportunities did in fact present themselves
and were refused because key resources could not be released from the
delayed project;
-Allow for off-site costs costs incurred in the Contractors head office (and
elsewhere) may be as a direct result of the project delay. The fact that these
costs were incurred off site does not mean that the Contractor is not entitled to
receive them;
-If possible, avoid formulae for determining overheads (e.g. Hudsons, Emdens
etc.) unless you are a Contractor and you fully understand the basis of your
loss of opportunity claim and how to present it! By indentifying actual
incurred overhead costs rather than rely on theory based formulae that
commonly produce high assessments;
-Interest / Finance Charges remember that charging interest on a debt may
be prohibited in your jurisdiction or by your contract. Most interest or finance
claims suffer from a lack of facts and are commonly: unsupported, theoretical
assessments of loss. However, a skilled claimant can often find ways to lend
credibility to this type of claim.