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Delay Costs

24 replies [Last post]
Mon, 2005-06-06 20:30
Uri Shachar
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Guys,

My understanding is that the Contractor is entitled to delay costs for a qualifying delays at the time when these delays occur i.e. during the execution of the works to cover his time related costs (prelims).

However, delay costs are payable only for ACTUAL delays i.e. not entitlement to EOT’s.

What happens if the Contrator got paid for delay costs during the works, but actually completed the works prior to the extended Date for PC?
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Replies

Mon, 2005-07-04 08:44
#1
David Bordoli
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Hi Phillip :-)
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Sun, 2005-07-03 08:22
#2
Andrew Flowerdew
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Shahzad

You are correct.
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Sun, 2005-07-03 06:09
#3
Shahzad Munawar
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I think Andrew is referring David Bordoli who posted 145 posts till todate
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Thu, 2005-06-30 08:35
#4
Andrew Flowerdew
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David,

Or as defined in the contract, eg NEC 10 year event etc, which may be classed as exceptional in one contract but not in another.

Uri,

Not exactly sure what point you’re making, yes time is often theoretical, it should be a best estimate at the time, usually on the conservative side as it can be reviewed later and extended if justified, although this is often realised. Cost as you say, is actual.

However, the contractors entitlement to either will usually be well defined in the contract and therefore this is always the first place to look.
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Thu, 2005-06-30 03:08
#5
David Bordoli
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Hey... don’t want to be pedantic (well, okay I do then)... Inclement Weather is not a ’Neutral Event’. that is contractor’s default. I think you mean ’Exceptionally Inclement Weather’?

:-)

David
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Wed, 2005-06-29 18:32
#6
Uri Shachar
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Andrew,

Unfortuantely, it is not so simple. You right in regards to ’Neutral’ delays, such as Inclement Weather, which entitle the Contractor to time but not costs.

However, my understanding is that the main difference between entitlement to time and costs is that time entitlement can be ’theoratical’ whereas cost entitlement must be ’actual’.

I’ll give you an example. Say the Contractor is now building the substructure. The Principal decides that he wants to add another storey to the building. Following such decision the Contractor will be immediately entitled to an Extension of Time. However, the Contractor will be entitled to Delay Costs only at the time when he is actually building the additional storey.

Since the forecasted time does not necessarily equals to the actual time entitlement for EOT does not automatically entail the same costs.
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Wed, 2005-06-29 17:06
#7
Andrew Flowerdew
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I think what David is saying is read the contract and all will be revealed.
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Fri, 2005-07-01 12:15
#8
Philip Jonker
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Who is David? You guys are all talking to someone who never posted anythig
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Wed, 2005-06-29 04:49
#9
David Bordoli
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Dear All

Using JCT style contracts as a basis:

force majeure
exceptionally adverse weather conditions
specified perils, loss or damage
civil commotion, local combination of workmen, strike or lock-out etc
nominated subcontractors and nominated suppliers
statutory intervention
labour materials and shortages
local authorities or statutory undertakers
reinstatement of war damage

There is also the vexed question of concurrent delays but I am a little to beaten to try to discuss that at the moment ... anyone?

David
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Wed, 2005-06-29 00:26
#10
Khaled Bashiti
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Hi Everyone,

Concerning this issue i think also we should look at the contract becasue a lot of details are connected to the issue, example should they pay for the entire prelims for that period or the activites we got through them an EOT only, then a breakdown will be done, calculations and so on but i think all this will be connected to the next issue.


Did we finish before time because its not a critical activites.

If so then the Float owned by whom (client, PM, Contractor..)???

Accordingly it seems that EOT will be given once the Critical path is affected otherwise we will go back to the above question.


As for the Delays that etitle contractor for EOT

Also it depends on the contract, because as a planner u will keep in mind a number of days for weather(depending upon the previous history of that region).

Usually contracts are specifing Calenders Days Not Working Days which means Holidays, Weather Conditions.....and so on, should be taken into consederation while tender and working program is done.

From that it looks like EOT is only given for Change orders affecting at the job course.

regards,

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Tue, 2005-06-28 18:20
#11
Uri Shachar
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Guys,

I think we all agree that entitlement for an EOT does not automatically entail entitlement for delay costs.

My follow-on question would be:

Under what circumstances would the Contractor be entitled to time, but not costs?
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Mon, 2005-06-20 09:10
#12
Stuart Ness
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David is absolutely right - we should "...try to get out of the habit of thinking an EOT entitles us to costs"

In this case, if the Contractor completes in advance of a prescribed EOT, and if he has been awarded time-related costs in regard to that EOT, he will only be entitled to be paid those time-related costs apportioned to the period of EOT that he has consumed.

Remember that the EOT represents the maximum additional period that the Contractor is allowed under the Contract terms to complete the Works. He therefore cannot expect to be reimbursed all of the time-related additional costs attributed to the entire EOT if he consumes less that the total EOT awarded to him.
If he was to do so, he would be in receipt of an "undue enrichment" and this (depending on the jurisdiction) is often against the law.

Of course, the Contrcator may be entitled to acceleration costs, but that is an entirely different issue.

Hope this helps,

Cheers,
Stuart

www.rosmartin.com
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Sat, 2005-06-11 20:03
#13
Andrew Flowerdew
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I agree with David -

EOT does not always entitle the contractor to costs. Some reasons for the EOT will, some will not, eg in alot of contracts adverse weather is often a reason for granting an EOT but attracts no compensation. The contract will often state what will or will not give rise to compensation (or more accurately give rise to a claim of damages) and if not covered by the contract, the common law of that country in respect of contracts will prevail.
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Thu, 2005-06-09 04:07
#14
Shahzad Munawar
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David

You quote

"we should try to get out of the habit of thinking an EOT entitles us to costs"

I agree with the above quotation.

This all depends upon your Contract if the Contract allows such costs associated with EOT, you are entitled, if not then these costs can not be payble to you.

So usually such question should be floated here after reviewing the Contract Provisions.

Your Contract truly speaks what are the obligations of Contractor, Consultant and Employer so one should proceed accordingly.

If someone get such costs beyond the Contract, this is really his worth achievement.
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Thu, 2005-06-09 02:59
#15
Uri Shachar
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David,

You are right, this was the question.

The issue is timing - prolongation costs are due to the Contractor at the time of the delay, not at the end of the job, as the Contractor is not covered for his time related costs during the delay (see my example).

At this time nobody knows whether the Works will be completed on time or not.
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Thu, 2005-06-09 02:54
#16
David Bordoli
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Uri

Thanks for that - obviously, and unfortunately, I am obsessed by UK type contracts. But... taking your example the additional prelim costs (accommodation hire, extended salaries and so on) are a direct cause of the delaying event.

I thought the question was about if an EoT had been granted but the contractor managed to complete on time would ’prolongation’ costs be payable for the EoT period. My opinion is no, there would be no extra prelim costs of accommodation, salaries and so on.

Regards

David
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Thu, 2005-06-09 02:49
#17
Uri Shachar
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David,

Well, in Australia if the Contractor is being delayed by a compensable cause, he will be entitled to prolongation costs. These prolongation costs are often pre-ascertained, just like Liquidated Damages.

The idea behind prolongation costs is to cover the TIME RELATED COSTS i.e. in-direct costs incured by the Contractor by reason of the delay.

Let’s take an extreme example. Say the principal decided to suspend all the works (for a short period to keep the example simple) for some reason. The Contractor will not be entitled to any Direct Costs as no work is being done. However, the Contractor will have Costs which are not related to his activities on site such as Project Manager, Sheds, Crane, Telephone etc. The Contractor will be entitled to re-imburesment of these costs.
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Thu, 2005-06-09 02:31
#18
David Bordoli
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Guys

In my humble opinion, I think you have lost the plot somewhere along the way, or maybe it’s me not understanding the question. I thought the granting of an extension of time was merely a mechanism for relieving the contractor of the liability to pay damages for not completing on time. The question of costs is something totally separate. The only costs recoverable are direct loss and expense associated with the even that lead to the granting of the EoT (notwithstanding you may have some side clauses for payments for ‘mitigation’ or acceleration). That leads me to the conclusion that if you have been awarded an EoT through entitlement but in fact finish prior to it then your direct costs associated with the delaying event will be somewhat limited. I think you might just end up trying to recover direct costs of disruption (in the same way that you would for an event that does not result in an EoT).
I am not a quantity surveyor so maybe I have got the wrong idea but we should try to get out of the habit of thinking an EoT entitles us to costs, that is not an automatic assumption.

My apologies if I have offended anyone by this reply.

Regards

David
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Wed, 2005-06-08 02:22
#19
Shahzad Munawar
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Uri

Such delayed costs are subject to grant of EOT. Once EOT is granted by the Client then you finish the job prior to revised completion date or on revised completion date, such costs will be paid to you. Moreover all paid delayed costs prior to revised completion dates will be evaluated as per actual completion at the time of Final Account and adjusted accordingly.
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Tue, 2005-06-07 18:54
#20
Alex Wong
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Uri

Said your clients already issued an EOT to the project with a mitigation cost (Delay), then you finish the job earlier than the EOT. Your question is whether the contractor still entitle to the EOT assoicated cost.

My answer is yes, the contractor still entitle to the approved EOT cost.
Because the EOT is already assessted and approved, whether or not it actually require the additional time by the contractor is up to the contractors. If you finished early you finished early.

Of course you have to prove that the early finish is not due to a mis-calculation (schedule) on the original EOT critical path.

Cheers

Alex
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Tue, 2005-06-07 11:22
#21
Philip Jonker
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This is an interesting point, when you claim a delay and you finish the project early. I think Alex hit the nail on the head. Lets say you have a chain of activities with TF of 60 days, and a delay occurs within that chain of lets say 30 days. The questions is:
1: Have you mobilised a team for these activities?
2: Is it a specialised team, or can they be applied elsewhere?
3: If they are specialised, can they be demobilised, and brought back?

There is probably a lot more questions. The point is from a clients perspective, do not grant EOT’s willy nilly, ask the right questions, and then try and be fair accordingly.
From the contractors perspective, be pro-active and make sure you can anticipate this sort of thing, and be honest with the client. It can only cause friction and you probably end up with mud on your face if you claim a thirty day extension and end up 60 days early. Try and keep things in perspective, and try and remember why the industry uses planners. Make sure you use that crystal ball!
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Mon, 2005-06-06 23:35
#22
Sunil Kumar
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Hi guys,

I think your PC will work till the Taking over certificate is issued assuming you are entiled for a time period till then.

Cheers

Sunil
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Mon, 2005-06-06 23:00
#23
Uri Shachar
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Alex,

Thanks for your response. I agree with you, EOT does not necessarily means delay costs. However, my point is slightly different:
1. Say the Contractor was entitled to EOT with costs before project completion..
2. My understanding is that such costs should be paid once the EOT has been approved i.e. during the execution of the works.
3. What haapens if the EOT for which costs were paid does not materialised (or partially materialised) i.e. the Contractor finishes the Works prior to the revised Date for PC?
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Mon, 2005-06-06 22:58
#24
Alex Wong
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Hi

I can see your point of Delay Costs in not necessary assoicated with EOT. Ie the client might delay certain part of the design and willing to paid for the cost of additional design engineer, + draftman (Delay Cost). But if this activity is not part of the critical path it might not granded for a EOT.

Therefore Delay Cost is not equal to EOT.

Cheers

Alex
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