Ways to Minimiz the Preliminaries Cost

Dear, Mike Testro



Generally, it is said that cost of prolongation due to delay events shall be determined for the period of actual delay (which is acceptable at this instance); however question is ‘when shall this cost be paid to the Contractor i.e. to be paid at the period of actual delay or during the extended period).’



This delay cost may be divided into two groups

1. Disruption Cost (including idling, reduced productivity, abortive works etc)

2. Prolongation cost (Time related costs as site office, supervision etc)



It is agreed that Disruption cost (since non-time related) shall be calculated and paid in successive running bills at the time of actual delay period, as and when the Contractor claims.



However, this question relates to cost of prolongation?





Scenario-1, Original Contract:



Consider a project of 6 months duration, where there is a provision of 18m AED prolongation cost in original tender. Let us say, the Contractor will be paid @ 3mAED for each month during the course of execution (As per Tender Allowable).





Scenario-2, First Delay on the Project due to Neutral Delay Event and Contractor Culpable delay: - Consider a delay of 3 months occurred at the end of 2nd month due to neutral delay and contractor culpable delay. The Contractor is entitled for an EOT of 3 months without prolongation cost.





Option-1: whether the Contractor shall be paid for prolongation cost @ 3mAED for first 6 months (As per Tender Allowable) and no cost for last 3 months (Argument from Contractor being that 3m AED for original period is payable to him in any way as per tender allowable plan despite of any delay)



Option-2: Whether, the Contractor shall be paid prolongation cost @ 3mAED for first 2 months and then last 4 months. Prolongation cost for 3rd, 4th and 5th month shall not be paid, since this period is actual delay period due to Neutral Delay Event and Contractor’s Culpable Event for which he is not entitled for prolongation (Argument from Employer being that the period from 3rd to 5th month is neutral delay period and accordingly actual cost of prolongation due to delay event shall be paid at that time which is null).



Which option will be appropriate?





Scenario-3, Subsequently Second Delay on the Project due to Employer Delay Event: - Consider second delay of 1 month occurred at the end of 5th month due to Employer delay. The Contractor is entitled for an EOT of 1 month with prolongation cost. Consider that actual cost of prolongation cost in sixth month (actual period of delay) is 6 m AED (due to high inflation, increase salary wages etc comparing to lower provision of 3m AED kept in his tender). how shall be case of prolongation cost?



Option-1: The Contractor shall be paid for prolongation cost of 3m AED for original contract period of initial six months (As per Tender allowable), then there shall not be paid any prolongation cost for months 7th, 8th, & 9th (extension of time due to Neutral delay event) followed by prolongation cost of 6m AED in 10th month (extension of time due to Employer event). This implies that cost of prolongation shall be determined for actual delay period, but shall be paid in corresponding extended period.







Option-2: The Contractor shall be paid for first 2 months @ 3mAED, shall not be paid for 3rd, 4th & 5th month due to Neutral delay period, shall be paid @ 6m AED for 6th month due to actual employer delay period and shall be paid @ 3m AED for months 7th , 8th , 9th & 10th. Principle being, cost of prolongation is paid at time of actual delay period and not in extended time.



Option-3: The Contractor shall be paid @ 3m AED for first 5 months (as per Tender Allowable), and 9m AED for 6th month i.e. period of employer delay event (i.e. 3m AED as per normal Tender allowable + 6m AED actual cost of this month; note that definition of cost states, cost properly incurred or to be incurred, therefore 6m AED cost is actual cost incurred in this month and 3m AED deemed to be incurred elsewhere and shall also be paid in this month). Thereafter, the Contractor shall not be paid for any prolongation cost in extended period.



Which option is correct?



Regards

Narinder

Hi



Less number of staff{Limitation in general}, more responsibility ,is one of they way to minimize the preliminaries.

You may request from the Contractor to provide the invoices (actual cost) which he burdened during the extended period; however, you need to check the ’wordings’ in the Contract related to the subject matter.



If the ’wordings’ say ’cost’; you may ask the Contractor to proof the costs; by providing invoices.



Furthermore you need to check ’concurrency of delays’; hence you determine the durations when the Client/Engineer were the only reponsible of the delays; however the indemnification will be based on the extended duration. Also you need to check the impacts (not the delays events themselves).



Regards,

Hi mai

A no-damage-for-delay clause attempts to contractually bar recovery by a contractor or subcontractor in the event project delays result in damages or extra costs. A sample no-damage for-delay clause is as follows:



"The Contractor agrees to make no monetary claim for delays,interferences or hindrances of any kind in the performance of this Contract occasioned by any act or omission to act of the authority of any of its Representatives and agrees that any such claim shall

be fully compensated for by an extension of time to complete performance of the work."



Generally speaking ,we can assume that Preliminaries Cost can distribute as the following :-

40 % for Mobilization and start up preparing

45 % for Running direct expenses of the project

15 % for demobilization and project closing expenses



So if there is any compensation the contractor may be entitled due to EOT it will be only for 45% part of the Total Project Preliminaries Cost



I hope this is helpful for you

Dear May,



You can try to stop using them. Or your can issue a variation to reduce the scope and hence minimize the cost.



For example, if you have a monthly fee for cleaning site, you can tell the contractor to reevaluate the price since most of the activities are complete (maybe).



The best thing is to review the things that you want to use with your Construction Team and eliminate the remaining.



With kind regards,



Samer

Hi Mai



The simplest and most direct method of reducing site prelims is to finish ahead of time.



Best regards



Mike Testro

Dear Mai,



In addition to what Trevor said, if you are on the client side, you need to remember that this is a Contractual issue (after you sign the Contract), so either you cancel it or you find something cheaper and issue a variation order to the Contractor.



If you are on the Contractor side, and you want to reduce the cost, then you can propose something with equal or better value at less price under the "Value Engineering" clause and send it to the Engineer for approval.



With kind regards,



Samer

Err.. what do you mean?

Do less of it?

Buy things cheaper?