Contractor claims for a comprehensive guide

1 Issue 93 - January 2022. Insight provides practical information on topical issues affecting the building, engineering and energy sectors. Inside this issue Contractor claims for prolongation costs: a comprehensive guide 01 Insight Issue 93. Contractor claims for prolongation costs: a comprehensive guide claims for prolongation costs are bread and butter for those working in construction disputes. Notwithstanding this, the basic rules governing if prolongation costs are recoverable, and how to prove the quantum of those costs, are all too often Likewise, the terminology used in such claims is often used without a proper understanding of what it means.

2 In this Insight, we provide a comprehensive guide to prolongation costs looking at the basic law governing when they can be claimed, the rules under key domestic standard construction contracts and then deep diving into specific categories of prolongation costs. So, what are prolongation costs? When claiming prolongation costs, the It is also important to remember that Contractor will generally need to the analysis necessary to establish a demonstrate that it has actually Contractor 's entitlement to an Where a construction project suffers incurred costs/losses because of delay, extension of time is different to that from delays, those delays cost money and that it would not have incurred needed to establish entitlement to for all involved.

3 The Employer does not those costs/losses but for the Employer prolongation costs. The differences have use of its building on the date Risk Event. between extension of time claims and originally intended, and the Contractor prolongation costs claims were incurs time-related costs. Where explained in Costain Limited v Charles critical delay to the project is the Extensions of time and prolongation Haswell & Partners Limited5: responsibility of the Contractor , the costs financial remedy for the Employer is liquidated (or general) damages. When an extension of time of the Prolongation costs are often Where the critical delay to the Works is project completion date is claimed, considered to be the financial element the Employer's risk, however, the the Contractor needs to establish that of a Contractor delay claim.

4 It is Contractor may be entitled to a delay to an activity on the critical sometimes assumed that, where a prolongation costs (which are also path has occurred of a certain number Contractor is granted an extension of known as loss and expense). of days or weeks and that that delay time, prolongation costs should has in fact pushed out the completion automatically flow. This is incorrect as: date at the end of the project by a Prolongation costs are those time- given number of days or weeks, after related costs incurred by the although prolongation costs are taking account of any mitigation or Contractor as a result of critical delay often seen as the financial side of a acceleration measures.

5 If the to the Works (and therefore an delay claim , there is no automatic Contractor establishes those facts, he extension of the contract period) for entitlement to loss and expense or is entitled to an extension of time for which the Contractor is not damages even if a right to an completion of the whole project responsible. Keating on Construction extension of time is established. 4 including, of course, all those activities Contracts defines prolongation costs [Emphasis added] which were not in fact delayed by the as: delaying events at all, they were not on the critical path. This is because where there are other costs and losses incurred as a result non-critical Contractor delays on the of delays to the activity in question or project, the scale of those delays may But a claim for damages on account the works as a whole which have led to mean that the Employer Risk Event of delays to construction work is rather critical delay to the contract doesn't cause additional costs to be different.

6 There, in order to recover completion date. 2. incurred for the full period of the substantial damages, the Contractor extension of time awarded to the needs to show what losses he has Prolongation costs are intended to Contractor . The excusable delay , in incurred as a result of the prolongation compensate the Contractor for its respect of which the Contractor is of the activity in question. Those losses time-related costs which it would not entitled to an extension of time, may will include the increased and have incurred but for the Employer-risk be different to the compensable additional costs of carrying out the delay event.

7 The SCL Delay & delay in respect of which the delayed activity itself as well as the Disruption Protocol puts it like this: Contractor is entitled to its additional costs caused to other site prolongation costs. activities as a result of the delaying event. But the Contractor will not The objective is to put the Contractor recover the general site overheads of in the same financial position it would In other words, time doesn't always have been if the Employer Risk Event equal money. had not occurred. 3. 02 Insight Issue 93. carrying out all the activities on site as Further, task-related costs, which are remains debate as to whether this a matter of course unless he can those costs that would have been notification requirement is a condition establish that the delaying event to incurred in any event to complete the precedent to the Contractor 's one activity in fact impacted on all Works (and which are not the result of entitlement to prolongation costs.)

8 As the other site activities. Simply the increased duration of the such, the golden rule must be to because the delaying event itself is on Contractor 's Works), are not notify prolongation costs claims the critical path does not mean that recoverable as prolongation costs. without delay. in point of fact it impacted on any other site activity save for those What do the standard form As well as notifying the claim, the immediately following and dependent contracts provide in respect of Contractor is obliged to provide its upon the activities in question. 6. prolongation costs? initial assessment of the loss and/or [Emphasis added].

9 Expense incurred and any further amounts likely to be incurred, together JCT 2016. Claiming prolongation costs during with such information as is reasonably the project necessary to enable the Employer to The JCT suite of contracts provides ascertain the loss and/or expense that, where the Contractor incurs or incurred. That information should be When claiming prolongation costs, is likely to incur any direct loss and/or provided with the Contractor 's original the Contractor must ensure that its expense as a result of the regular notification or as soon as reasonably claim includes sufficient information progress of the Works being practicable.

10 14. to enable the amount of its incurred materially affected by any Relevant loss and expense to be ascertained. Matter , the Contractor will be Detailed submissions with The Contractor is also under an entitled to be reimbursed for that loss comprehensive supporting obligation to provide monthly updates and/or The event giving rise information should be provided by the (to its initial assessment and to the delay must, therefore, be a Contractor , if possible. However, per information) to the Employer, in such Relevant Matter in order to give rise to the TCC's judgment in Walter Lilly & form and manner as the Employer an entitlement on the part of the Company Limited v Giles Patrick Cyril may reasonably require.