In short, to warrant payment of prolongation costs the delay must be compensable, affect the critical path and delay completion of the works. Force Majeure is likely to be rejected in principle by the employer as the contractor usually has no entitlement to the recovery of time-related costs under such circumstances. With regard to compensation, the Delay and Disruption Protocol issued by the Society of Construction Law provides the following guidance:.
In other words, the compensation for prolongation caused other than by variation is based on the actual additional cost incurred by the Contractor. Often I see prolongation cost claims predicated on the additional time-related costs during the over-run period between the original completion date and the actual completion date. This is incorrect as it does not represent the actual loss and expense suffered at the time the project was actually delayed.
For example, an original project completion of 1 August was delayed by 4 weeks to 29 August due to an earlier 4 week critical delay that occurred in March the same year. The delay event occurred in March not August and therefore it is the loss suffered in March that should be quantified.
It is therefore vitally important to identify the root cause of delay, when it occurred and finished and the consequential effect the delay event had on the regular progress of the works and in turn the impact on completion of the works. Quite often an area of disagreement is the matter of concurrent delay. A useful definition of concurrent delay can be found in the case of Royal Brompton Hospital National Health Trust v Hammond as follows:. Two or more events occurring within the same time period, each independently affecting the Completion Date.
The topic of true concurrency and dominant delay has been, and undoubtedly will continue to be, the subject of much debate and case law. This is a topic in itself which is best left to the expert delay analysts to opine on and lawyers to litigate over. If the culpable delay extends over a longer period than the compensable delay, the contractor will have no entitlement to prolongation costs. If the compensable delay extends for a longer period than the culpable delay, then the contractor is entitled to prolongation costs for the period where the compensable delay is not concurrent with the culpable delay.
The table below summarises a hypothetical scenario. The main issue with preparing a disruption claim is the detail of information needed to carry out the calculations to a level that adequately shows a drop in efficiency or lost productivity. The different methods of preparing disruption claims all rely on calculating losses against productivity to some extent and the method chosen is normally driven by the information that is available for its preparation.
Whilst the example above appears simple, a bill of quantities can, even on relatively simple projects, include hundreds if not thousands of rates. Disruption claims need thought, time for the detailed analysis and most of all adequate records from which to prepare the calculations. Unfortunately, disruption claims are often regarded as an afterthought once the opportunity to create these records during the progress of the works has been lost.
Construction projects are extremely complex and, in reality, disruption occurs on all projects at some level. For example, on a new motorway project, a contractor was able to show from its records that the non-disrupted road construction was progressed at a considerably higher level of efficiency than assumed at tender. In order to assist the tribunal, an appointed quantum expert will need to provide an opinion in relation to the quantum claimed for the loss of productivity arising from the alleged disruption events.
To do this, the expert will focus on the records in relation to the time spent by the labour and plant as well as its supervision in undertaking the work activities. This is to establish whether the reduction in productivity has occurred and the quantum of any associated loss. It would therefore also be prudent for the employer to insist that the contractor adequately records its resources in reporting progress as opposed to just accepting a head count as is often seen.
This would allow the employer, for its own protection, to ensure that an appropriate analysis is undertaken to correctly value the loss if any. Practice Area. Arbitration Asset Recovery Banking Business Crime Defence Capital Markets Commercial Litigation Competition Construction Corporate Immigration Corporate Tax Data Energy Environment Franchise Government Healthcare Hospitality IP Investigations Life Sciences Brazil Canada Central America Florida France Germany Iberia Italy Similarly, a contractor may be short-changing itself by claiming for its additional preliminaries in this way.
Whilst there may be occasions when the early settlement of a contractor's claim is commercially viable, it should be noted that a pro rata prelims claim is likely to be either inappropriate or wrong for the reasons set out below. The first reason why a pro rata prelims claim is wrong is because it is dealing with the wrong period. A claim for additional preliminaries should be assessed at the date of the breach itself, i.
Take a simple example, a small project has a 3-month contract period and during the first month delays occur which delay the final completion date by a further month. In this scenario the appropriate period for assessing the preliminaries to be claimed is the first month, i. Unfortunately, this problem is often compounded by reason of the fact that an employer will often pay a contractor for all of the claimed preliminaries over this delayed period without making an adjustment for the contractor's actual progress.
By making such payment the employer exposes itself to a financial risk later in the project because at some future point all of the activity and time related preliminaries included in the contract price will have been paid by the employer, but the contractor will have not completed the works. Another potential problem with pro rata prelims claims is the risk of double recovery.
In short, if the cause of a delay to a project's completion has been the issuance of variations or the carrying out of dayworks then the employer should ascertain if the cost of additional preliminaries for carrying out those variations or dayworks has been included within the valuation of the same though, this tends to be more of an issue in terms of a claim for head office overheads and profit. Therefore, employers should carefully scrutinise a pro rata prelims claim which is based on delays caused by variations.
A further potential problem with pro rata prelims claims leaving aside arguments that the preliminaries figures in the Bill of Quantities may not represent a contractor's actual costs when the works are carried out is that a contractor will often fail to apportion those costs included within its activity or time related preliminaries between those which are recoverable as part of a claim and those which are not.
In other words, if a delay is suffered to a critical activity it may well be that some aspects of the overall preliminaries can still be put to good use on other activities during this period of delay. In a recent English case the risks of a party failing to properly apportion its preliminaries in this way were made all too apparent.
In this particular case the learned Judge had this to say on the point: "But the contractor will not recover the general site overheads of carrying out all activities on site as a matter of course unless he can establish that the delaying event to one activity in fact impacted on all the other site activities. Simply because the delaying event itself is on the critical path does not mean that in point of fact it impacted on any other site activity save for those immediately following and dependant upon the activities in question But no evidence has been called to establish that the delaying events in question in fact caused delay to any activities on site apart from [critical buildings].
That being so, it follows, in my judgment, that the prolongation claim advanced by [the Claimant] based on recovery of the whole of the site costs of the [project] site, fails for want of proof. It is suggested that the above proposition of apportioning preliminaries ties in with the UAE principle of proof of damages.
That being said, it is acknowledged that there may be circumstances in a particular case where no such apportionment can or need be carried out.
What is also interesting to note about this particular case is that when proceedings commenced the Claimant sought to recover GBP3. However, during the course of proceedings it reduced its claim to GBP1. The Claimant was actually awarded GBPk! Given that the Claimant's legal costs in the case were approximately GBP1.
In summary, employers and their advisers should be wary of entertaining pro rata prelims claims. The onus is always on a contractor to prove its entitlement to a claim both in terms of liability and quantum. Clearly, if a contractor has suffered a loss then, as a matter of law, it should be compensated, but only insofar as it is able to properly demonstrate its loss.
NB: The above article does not constitute, and should not be interpreted or relied upon, as legal advice. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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