LOSS AND EXPENSE

RECOVERING PROLONGATION COSTS

When the sub-contractor over-runs his completion date, he risks incurring damages from the client and/or main contractor. He also incurs his own costs of “prolongation”, because he has to retain his site establishment, engineers and supervisors, plant etc beyond the period allowed in his tender. If the sub-contractor has submitted regular delay notices, he should be able to secure an extension of time and protection from damages. Recovery of his over-run costs may be more difficult.

Prolongation costs

These costs are often called “preliminaries”, and the client will demand a tender breakdown, with the object of pricing the over-run based on the tender allowances. Such requests should be resisted. The general position is that the delay is to be based on actual costs incurred at the dates when the actual delays occurred. This may well lead to a series of calculations based on “full strength” prelims, rather than at the reduced “tail end”.

On bigger jobs, an effective approach is a bar chart showing originally planned staff resources (eg site manager, engineers, supervisors, charge-hands, surveyors, planners, clerical staff, first aid and welfare, storekeeper , watchmen, cleaners and canteen staff etc) with the specific duration in weeks for each individual. Underneath each “bar” the chart will then show the “actual” resource used and duration of same. This has the added benefit of picking up additional staff resources introduced in response to the events imposed upon progress.

If added difficulty of the job necessitates increases in staff and/or supervisory involvement, then this should be notified at the time, specifying exact reasons for the increase, the proposed duties of the personnel concerned and intention to seek reimbursement. It is wrong to leave this sort of claim until the end, as so many claimants do.

Off site overheads

Wherever possible, off site personnel such as contracts managers should be costed into the claim on the basis of actual involvement during the period of delay. The chances of recovery can be enhanced by “job costing” as many head office personnel as is possible. This involves all head office personnel completing weekly time sheets by allocation to specific projects, to be costed against the various projects on an hourly or daily rate. This “job costing” approach is of tremendous assistance in substantiating claims for weekly cost of head office personnel due to over-run. Also, it has the added benefit of reducing the residual percentage left to cover fixed overheads (eg Directors, administrative and ancillary staff, lease/rent of premises, rates, heating and lighting, office equipment, etc).

As to these residual (fixed) overheads, the more acceptable approach is to add a percentage to the net total of the claim. This percentage may be verified by a letter from the company’s auditors and/or reference to trading accounts.

More ambitious is a “formula” approach. In simplest terms, the formula is as follows : H/100 x c/cp x pd (where H = head office percentage from tender (Hudson) or company accounts (Emden), c = contract sum, cp = original contract period, and pd = period of delay).

Any formula type claim must make allowance for additional overheads recovery via variations. Also, the claimant would need to prove availability of other work during the period of prolongation, plus evidence of turning work away due to staff being tied up on the delayed project. He may well be challenged to open his company books and prove the tender overheads, or those arising in trading accounts, and to demonstrate an under recovery of overheads during the period in question. These are tall hurdles, but if the claim is genuine, not insurmountable.

Loss of profit

This may be valid in principle, but subject to similar difficulties as overheads. In both cases, the claim is hard to prove in times of recession, when profitable work may be hard to find. Also, the claimant would have to prove that he was capable of earning profit on his trading generally.

Increased costs (fluctuations) due to fixed price shift

On a fixed price job, delay may incur expenditure due to wage increases and/or materials price rises. The easier approach is to assess the additional costs by reference to industrial indices. However, the client may insist on full details of each operative and invoice etc.

Notices and records

It is absolutely vital to submit written notices when any significant delay becomes likely, and to request extension of time when the original completion date appears threatened . The same applies to claims for loss and expense. These notices must be supported by site records such as diaries, progress reports, updated programmes, etc. It is far better to address the problem by proactive notice and discussion than to become locked in a dispute after the project is completed.

Home page