- Business Corner -

Prolongation costs - a practical approach

by Brian E Rawling
During the course of a recent dispute in which the writer was
involved, the employer's representative reduced the valuation of
the contractor's daily prolongation costs on the basis that, when
one activity was delayed, the site staff working on other activities
which were not delayed could have continued with their tasks
unaffected by the delayed activity.

Fiure 1 Comme-n}cpem^em

Contract
Completion

Concrete works
M&E installations
Architectural works

Hence, even for a delay on the critical path which prolonged

the directly impacted activity and construction of the whole of the
works, the employer's representative maintained that the measure
of the contractor's direct loss and/or expense was not related to
the time of all of the site staff on site during the period of critical
delay, but only the staff which were directly affected by the
delaying event. In effect, the employer's representative maintained
that from 30% to 50% of the site staff could have continued with
their tasks unaffected by the critically delayed activity and should
have been excluded from the ascertainment of direct loss and/or
expense.

The project was for the construction of a medium-rise

educational facility with a reinforced concrete structure and typical
M&E installations and architectural works.
The employer's representative also maintained that the
contractor should have maintained records of what its staff did on
a day-to-day basis so that the effects of the event on the
functioning of the site staff could be identified. However, the
contractor had not maintained this type of record (which,
incidentally, the writer strongly recommends a contractor/subcontractor to do when it has a contract or sub-contact which is
likely to be delayed and disrupted) and could not, therefore, prove
its claim in the way that the employer's representative maintained
that it ought to have been able to.
The contractor was left in a predicament where it disagreed
with the employer's representative but did not have the records
to prove its case that all of the time related to site staff resources
during the critical delay should be included in the ascertainment
of direct loss and/or expense.
In response to the employer's representative's contentions,
the following philosophy was developed to persuade the
employer's representative that he was wrong when contending
that 30% to 50% of the time related site staff resources were
unaffected by the delaying events,

At a certain point, progress of the concrete works was impacted

by the effects of an excusable event which caused a period of
unrecoverable delay to work on the critical path, the excusable
and compensable event being the redesign of the floor plate layout
for the upper half of the building. Upon receipt of the architect's
instruction the contractor had to assimilate the changes being
instructed before it could proceed to implement them.
The initial effect of the excusable and compensable event upon
progress of the concrete works was a period of near total
suspension. In this situation, the contractor became entitled to
reimbursement of the direct loss and/or expense or damages
caused by the progress of the concrete works being delayed.
The secondary effects of the excusable and compensable event
were a prolongation of the concrete work activities and delay to
completion of the concrete works. In turn, this caused similar
periods of prolongation and knock-on delays to completion of followon activities and completion of the building.
In this situation, the contractor was entitled to an extension of
time equal to the period of projected delay to completion caused
by the excusable and compensable event which initially affected
the concrete works and then caused knock-on effects upon followon activities. This is shown in Figure 2.
Progress of the M&E installations would not be delayed in
exactly the same way (except cast-in conduits) as the concrete
works were delayed, although the M&E installations would, with
time, become increasingly delayed as the delay to the concrete
works continued and impacted upon the progress of follow-on
trades. Redesign of the concrete works would require redesign of
the M&E installation, re-coordination and revised CSDs, CBWDs
and the like. There may even be revised or additional procurement.
Once construction of the concrete works resumed, M&E
installations could follow but progress would continue to be
restrained until the availability of completed concrete works reached

Knock-on effects
In Figure 1, the construction of the medium-rise building is
represented by three activity bars. Construction of the reinforced
concrete structure includes cast-in conduits, so M&E installations
had to start at the same time as the concrete works. Completion
of the M&E installation is timed to coincide with completion of
the architectural works due to the interfaces between finishings
and final fix M&E installations.

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ENGINEER April 2004

11

--^ Business Corner vthe previously intended level of lag between completed concrete
works and access for M&E installations.
Similarly, progress of the architectural works which lagged
behind progress of both the concrete works and the M&E
installations would eventually and inevitably become delayed by
the knock-on effects of the delays to the concrete works. Progress
would be restrained until the availability of completed concrete
works reached the previously intended level of lag between
completed concrete works and access for architectural works
which would also have to be re-coordinated with the delayed M&E
installations due to the interfaces between these elements.
In Figure 3, the coloured parts of the bars represent utilisation
of the contractor's resources, whilst the grey areas represent the
under-utilisation of resources, re-coordination, re-sequencing and
the other impacts of the delaying events. Therefore, the grey areas
represent the extent of the contractor's losses and, therefore, the
amount of reimbursable direct loss and/or expense.

Fwure

The

extent of aired Ion and / of expense

area n

Computerised proforma type records can be prepared for the site

staff to fill in to show, for each day, the time spent on:
1. the original contract work;
2. researching ambiguities, seeking and implementing
clarifications;
3. processing, assimilating and implementing changes ordered
by architect's instructions;
4. re-coordinating and re-sequencing work affected by variations;
5. the effects of late instructions, clarifications and the like;
6. additional procurement (sub-contractors and suppliers);
7. any other extra work generated by a compensable event.
The additional staff time in maintaining such records
(estimated at no more than 15 minutes per day per person) is
time well spent.
During the arbitration hearing for the dispute referred to in
the first paragraph, the employer's representative acknowledged
that he had not fully considered the scenario in Figure 3. Now
the arbitrator's award is awaited to confirm the merits of the
contractor's contentions. O
About the author: Brian E Rawling is the principal of the
commercial and contractual consultancy Brian E Rawling &
Associates. He can be contacted at info@brianerawling.com.

area n

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Fundamental breach . A breach of contract usually gives

the injured party the right to claim damages. The purpose of

The zone of influence shown in Figure 3 represents the extent

that the initial delay to the concrete works impacted upon the
progress of follow-on trades through successor activities and
construction logic. The additional cost incurred by the contractor
has to be fairly ascertained. In addition to delays and disruption to
construction activities and construction resources, there were
delays and disruption to time-related overhead resources such as
site staff, plant, utilities and other site facilities. As a general guide,
the cost of all time-related overhead resources during the period
of delay to the concrete works is a reasonable measure of direct
loss and/or expense on this type of project.
It is not common practice for contractors to keep detailed
records of the work which their staff performs. In situations like
the scenario in Figure 3, the tasks of re-coordination, redesign, replanning, re-sequencing and delays to procurement would involve
most site staff. However, without adequate records, that cannot
be proven.
In the absence of adequate records, it would be reasonable to
ascertain direct loss and/or expense by assessing the average daily
cost of all time-related site staff and other time-related resources
involved with the project at the time of the delay to the concrete
works and multiply this average daily cost by the period of delay.
Any knock-on effects which occurred at a later date could be
included in the ascertainment when they could be identified.

Conclusion
When a contractor is delayed and disrupted, it should keep
records of the work carried out by its staff on a day-by-day basis.
12

damages for breach of contract is compensatory; that is, to

put the injured party in the same position he would have been
in had the contract been properly performed. However, certain
breaches of contract such as breach of a fundamental term or
condition may be so serious as capable of bringing the contract
to an end by allowing the injured party to rescind or terminate
the contract. A fundamental breach is said to arise if the breach
complained of goes to the root of the contract such that it
totally destroys the purpose of the contract or makes
performance fundamentally different to that originally intended.
On a construction contract a fundamental breach might arise
if the contractor or subcontractor packs up and abandons the
site and works. Equally, the employer/promoter who at the
relevant time is unable to give possession or access to the
site or announces he has no finance for the project may commit
a fundamental breach. The parties to the contract can
however, and frequently do, provide contractual mechanisms
in the event of specified breaches addressing the
consequences of those breaches. Typical provisions include
agreeing the payment of liquidated damages for delay on the
part of the contractor/subcontractor or alternatively entitlement
to an extension of time for delay on the part of the employer.
The parties can also agree that certain contract terms are to
be treated as fundamental terms entitling the other party to
treat the contract as at an end if such terms are breached.
Law A-Z is provided by Ir Kevin Corbett, a senior associate of Masons
and chartered civil and structural engineer. He can be reached at
kevin.corbett@masons.com.

ENGINEER Apra 2004