PROLONGATION COST IN EOT CLAIMS

Once a Contractor has secured an extension of time and relief from liquidated da
mages, thoughts will quickly turn to recovery of the costs incurred due to the d
elayed completion date
i.e. Prolongation Costs .
If you ask an Employer s QS how such costs should be determined the answer is ofte
n 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 fo
r preliminaries shall then be applied to the extended duration. The sharp witted
Employer s QS may even refine this logic with the caveat that the BOQ rates and p
rices should first be adjusted to remove fixed costs, mobilization and demobiliz
ation 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 appr
oach attempts to address the underlying question of what costs / losses were act
ually incurred by the Contractor as a consequence of the delaying events for whi
ch 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 Contractor s
cost records The express wording of the contract will dictate which heads of cla
im are admissible, but in general terms an accurate understanding of Prolongatio
n Cost entitlement can be derived by application of the following basic principl
es:
-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 ident
ify the costs that were incurred over the extended duration at the end of the co
ntract period. This is incorrect. The delay may have occurred prior to full mobi
lization and thus the actual costs incurred at that time may be lower;
-Identify the direct costs that follow from the compensable delay events the Con
tractor is not entitled to costs arising from delay events for which it is respo
nsible. Separation of the two can defeat arguments that the claim is global and
includes elements of the Contractor s 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, utilit
ies, 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 an
y event. These costs may only have been incurred at a later point in time and ar
e therefore not additional. Such costs would need to be separately recovered thr
ough 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 clai
m for profit can only be by way of a loss of opportunity claim
which may be expres
sly precluded by the wording of the contract and would in any case have to be pr
oved, i.e. that opportunities did in fact present themselves and were refused be
cause key resources could not be released from the delayed project;
-Allow for off-site costs

costs incurred in the Contractor s head office (and else

where) 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 rec
eive them;
-If possible, avoid formulae for determining overheads (e.g. Hudson s, Emden s etc.)
unless you are a Contractor and you fully understand the basis of your loss of o
pportunity claim and how to present it! By indentifying actual incurred overhead
costs rather than rely on theory based formulae that commonly produce high asses
sments;
-Interest / Finance Charges
remember that charging interest on a debt may be pro
hibited in your jurisdiction or by your contract. Most interest or finance claim
s suffer from a lack of facts and are commonly: unsupported, theoretical assessm
ents of loss. However, a skilled claimant can often find ways to lend credibilit
y to this type of claim.

Source of Material
Derek Nelson
Senior Vice President, Managing Director, Asia
Hill International, Inc