During a lecture given by a construction judge, I made the following handwritten note on my handout. “It is clear and understandable that the law permits those whose tenure on site has been extended involuntarily, the opportunity to be repaid for their additional time.”
Twenty years have passed since I made that note but I assume that it was a direct quote from the speaker, it seems too eloquent for the younger me.
Whatever its source it describes a fundamental cause of construction claims around the world, not just in Common Law jurisdictions either. The basic premise appears to be that if you are being paid to provide services for a limited or fixed time, then if that time expands due to circumstances beyond your control – and you are obliged to expend additional cost, you may initiate a claim for the overspend with a reasonable expectation of recovery.
I hope that it goes without saying that such risks should be balanced in the contract, to avoid a dispute later in the project, but essentially, if a client delays a contractor on site beyond the agreed completion date, then a claim for additional expenditure can be expected.
However, the caveat should be clear to all who seek recompense for additional time expended on a project, it is that you must have expended more than you would have expended had it not been for the prolonged period of work. There must be a financial loss.
Calculating Prolongation Loss
The process should be quite simple, records should show the overall expenditure exceeds the contracted expenditure and then we set about determining when the loss arose.
For decades the RICS has espoused their opinion that the measure of the loss will be more accurately calculated by identifying the costs incurred when the delay arose, rather than simply extending the ‘average’ costs, or the costs at the end of the project. This is a reasonable and reasoned approach accepted by many judges and tribunals. Whilst it is not always easy to do, it is the safest way to calculate the loss as it has the greatest evidential value. Additionally, it may provide a greater recompense when the true loss is identified.
Prolongation will have many impacts on a project, it will impact on labour, material prices, plant rates, site establishment and local/general management. All will have to be calculated with precision from records. These are the records required:
- A time analysis identifying when work should have been done according to the updated programme and when it was done once the prolonging delay was impacted. (The Cause)
- A quantum analysis of the incurred additional cost derived from the cause. (The Effect)
- A valuation of the loss arising due to the extended period of working. (The Damage)
In order to achieve this, we need our project schedulers to maintain updated programmes throughout the works, identifying potentially delaying factors. We also need to compare our planned resources and material/plant delivery dates with our actual figures. This will require allocation sheets, not just time sheets or delivery notes.
Armed with the data we set about comparing what should have been with what was. It is a long and cumbersome approach, but it satisfies the law in most regions and it gives tribunals the confidence to make a full award.
As with all areas of construction claims, bad habits perpetuate. I remember speaking out against the rampant use of formulae in the 1980’s, I followed up my criticisms in the two books I wrote in the 1990’s.
In case you are new to the industry let me explain that three main formulae were used to validate prolongation claims (often without the application of common sense). They were (and are), The Hudson Formula, The Emden Formula and The Eichleay Formula, all served a purpose in their era, but all were developed when construction projects looked a lot different to today. Mid twentieth century Habitat furniture may be making a comeback, but these formulae should be left to rest in peace.
If you examine the historical background to the formulae, you will find that they were developed largely for projects where site accommodation was a large wooden shed, possibly with a telephone and heating/lighting, and all major resources, materials, plant and administration were procured/ managed from a regional or head office.
You may remember from school that if the premise for a formula falls away, the formula itself falls away. These cleverly constructed formulae are not grounded in modern construction practice and so should be treated with great scepticism as they are easily defended with factual data.
That said, the use of such formulae is still prevalent by claimants and tribunals continue to place inconsistent reliance on them, subject to the facts of each case.
Similarly, simply extending site costs and head office costs by extrapolation, is unlikely to persuade a tribunal to make a full award.
The safest and best way to calculate your loss due to prolongation is by using contemporaneous records and common sense.
I am just one of many CCI testifying experts who have provided expert opinion on how best to calculate prolongation costs, all of whom will advocate the benefit of doing it right.
You will find many academic discussions about fixed and variable costs, inflation, loss of opportunity and normal/special damages. Read them and decide what you can use to make your prolongation convincing.
No matter how experienced you are you will always benefit from a good seminar on the topic, find one in your area, attend, ask questions, debate the answers. If you can’t find one, bring the expert to you via in-house training, let them tailor the course to your needs. Research and learning on this topic will repay your investment many times over. It did for me.
Jeff Whitfield LLB FRICS MCIArb
Director at CCi