Prolongation Cost Claims: What Contractors Can Recover

In brief: Prolongation costs are the time-related costs a contractor incurs because the project takes longer. To recover them you need an entitlement to time and money, a delay to completion that is not concurrent with your own delay, and records showing what the extra time actually cost. A rate taken from the tender is rarely enough.

Time and money are separate questions

An extension of time protects the contractor from delay damages. It does not automatically give a right to be paid. Under most standard forms, money follows time only for certain events. Under FIDIC 2017, for example, exceptionally adverse climatic conditions give time but not cost, while delay caused by the Employer gives time and cost plus profit. Under NEC4, a compensation event is assessed for both time and money through the change in Defined Cost. Under JCT, loss and expense is claimed under clause 4.20 for the relevant matters listed in the contract.

So the first step is always to check which delay events carry a right to costs under your contract.

What counts as a prolongation cost

Prolongation costs are the costs that vary with time rather than with the quantity of work. The usual heads are:

• Site staff: project manager, site engineers, planners, quantity surveyors, safety and quality staff who stayed on site for longer.
• Site establishment: offices, welfare, security, utilities, temporary roads and fencing.
• Time-related plant and equipment: cranes, hoists, scaffolding and other items hired by the week or month.
• Insurances and bonds: where the premium or the bond period was extended.
• Head office overheads: the contribution the project would have made to head office costs during the delay period, if the contractor can show it lost the chance to earn that contribution elsewhere.
• Finance charges: where the contract or the applicable law allows them.

Costs caused by working less efficiently, rather than for longer, are disruption costs. They are assessed separately and need different evidence, usually a measured-mile comparison of productivity in affected and unaffected periods.

Which period do you price?

A common mistake is to price the costs at the end of the project, when the site was being demobilised. The costs should be assessed for the period when the delay actually occurred. If a design delay held up the structure in month 8, the extra cost is the site establishment and staff you were running in month 8, not the reduced team present during the final snagging.

This is why the delay analysis and the quantum analysis must be linked. The delay analysis identifies when the critical delay happened and how long it lasted. The quantum analysis prices the resources on site during those windows.

Concurrent delay

If the contractor’s own delay ran at the same time as the Employer’s delay, the contractor may get time but not money for that period. The SCL Delay and Disruption Protocol takes this approach, and many contracts in the Gulf now say so expressly. Before pricing, check whether the analysis shows any concurrent contractor delay and remove those periods from the cost claim.

Head office overheads

Head office overheads are often the largest and most disputed item. Formulas such as Hudson, Emden and Eichleay are used to estimate the lost contribution, but tribunals usually expect evidence that:

• the contractor’s head office resources were held on the delayed project;
• the contractor could have used them to earn money on other work, for example because it turned down or lost tenders during the delay period; and
• the overhead percentage used is supported by audited accounts, not only by the tender build-up.

Without that evidence, the formula result is likely to be reduced or rejected.

Evidence that holds up

The strongest prolongation claims are built from actual cost records:

• payroll records and timesheets for site staff, tied to the delay period;
• hire invoices and plant registers;
• invoices for utilities, security and site facilities;
• insurance and bond extension invoices;
• audited accounts for head office overheads.

Where records are incomplete, rates from the bill of quantities or the tender may be used as a fallback, but the claim should say why actual costs are not available.

A simple structure for the claim

1. State the contractual entitlement to costs for each delay event.
2. Summarise the delay analysis and the delay periods for which costs are claimed.
3. Remove any periods of concurrent contractor delay.
4. Price each cost head for those periods, using actual cost records.
5. Add head office overheads and finance charges only where the evidence supports them.
6. Show how each figure can be checked against the records provided.

This article is general guidance. The contract and the records on each project decide what can be recovered.

Related: Quantum analysis services · Quantum analysis in construction claims · Concurrent delay explained