25 May 2022
The only contractual function of an Extension of Time is to extend the Completion Date / Time for Completion and therefore relieve the imposition of Liquidated Damages. Almost all contracts will keep the issue of additional time and additional payment separate therefore confirming that an Extension of Time does not give an automatic right to the additional payment. Commonly, the events giving EOT entitlement will not be the same as those giving additional payment entitlement.
An example of this can be seen by reference to the base FIDIC 1999 1st Edition which confirms that the occurrence of “exceptionally adverse climatic conditions” provides for EOT entitlement but not for additional payment.
The general right to additional payment could come from the following :
Note – For such damages to be claimed under the Contract, the Contract must state that claims under the governing law will be administered and determined under the Contract. If not, such claims will have to be separately pursued under the law (through the courts).
In the case of the FIDIC 1st Edition, 1999 such claims are permitted by the wording of clause 20.1 which by use of the word “otherwise” (the FIDIC official guide confirms that the wording is intended to allow claims under the law to be made under the Contract)
As a consequence of the prolongation of the Contract, the cost of the following are likely to be affected and therefore would normally form part of any prolongation cost claim
In most cases, the claim should be based on actual costs incurred due to the delay ( Note the FIDIC 1999 1st Edition specifically states the use of actual Costs for the allowable delay events )
In a brief explanation of the calculation principles
Main Contractor Site Costs
From the site records, all time-related costs should be collected during the period of delay and an average daily amount calculated. This amount should be applied to the period of critical delay for that delay event. If the project has several delay events at different periods different average daily amounts should be calculated for that period
The following simple example demonstrates why it is that the resources affected by the delay should be costed by prolongation and not the resources at the end of the project
Main Contractors Offsite Overhead contribution/costs
The additional offsite overheads can be calculated either by the addition of a % age to the total prolongation claim or the use of an Overhead Formula.
A comparison of the different results is presented below
Therefore for our EOT costings, it is suggested to use the Formula Approach as it generates a higher figure (with an established basis)
Key Subcontractor’s overheads (on and offsite)
Project delays will likely affect the overhead costs of key Subcontractors. Without prompting claims from these parties an amount should be included in any submission to the Employer. It is suggested to base this amount based upon the site / offsite overhead amounts in the Subcontract Sum and the period of delay
Additional work execution Costs (Effect of Inflation / Escalation during the period of Prolongation)
The cost of executing delayed works may have increased due to the effects of escalation/inflation. Accordingly, any prolongation claim should include an amount in respect of such increased execution costs
Disruptive effect (loss of productivity) of carrying out the delayed works under different conditions
As a consequence of delays, it is likely that certain works will be carried out under different conditions than originally envisaged, and as such, the cost of undertaking such works will increase due to losses in the planned productivity/efficiency
Different conditions could mean
Accordingly, any prolongation claim should consider calculating the amounts associated with executing delayed works under different conditions
The financial effect of delayed release of retention monies
As a consequence of a prolonged completion date, the return of retention monies at completion and the emend of the Defect’s Liability Period will be delayed which will affect project cashflow costs. An amount in respect of the financial cost of such delayed release of retention monies should be considered for all prolongation claims
It should be noted that whilst the effects of concurrent Contractor culpable delays should not reduce any EOT entitlement they are likely to affect any additional payment entitlement.
For example, if a project is being critically delayed by say 6 months due to the effect of variations but it can be shown that for 3 months of that period the Contractor was in delay then it is likely that the cost claim will be reduced by 50% to account for the effect of the Contractor delays
The principle behind such an adjustment is that the Contractors resources would have anyway be required on site for 3 months of the 6 months EOT due to the Contractors own delays.
Author: James Bristow