2020 practice and implementation of prolongation cost

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Construction Technology and Management Thesis

2020

Practice and Implementation of

Prolongation Cost Claim, Liquidated

Damage and Extension of Time in

Public Building Construction Projects (A

Case-Study on Bahir Dar University

Building Projects)

Tilahun, Ephrem

http://hdl.handle.net/123456789/11622

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BAHIR DAR UNIVERSITY

BAHIR DAR INSTITUTE OF TECHNOLOGY

SCHOOL OF RESEARCH AND POSTGRADUATE STUDIES

FACULTY OF CIVIL AND WATER RESOURCES ENGINEERING

Practice and Implementation of Prolongation Cost Claim, Liquidated

Damage and Extension of Time in Public Building Construction Projects

(A Case-Study on Bahir Dar University Building Projects)

By

Ephrem Tilahun Zegeye

September 1, 2020

Bahir Dar, Ethiopia

II

Practice and Implementation of Prolongation Cost Claim, Liquidated Damage and

Extension of Time in Public Building Construction Projects

(A Case Study on Bahir Dar University Building Projects)

MSc. Thesis

By

Ephrem Tilahun Zegeye

A Thesis Submitted to the School of Research and Graduate Studies of Bahir Dar Institute

of Technology, Bahir Dar University in Partial Fulfillment of the Requirements for the

Degree of Master of Science in Construction Technology and Management in the Faculty

of Civil and Water Resource Engineering

Advisor: Ahmed Mohammed (PhD.)

Co-Advisor: Rahel Ayalew (MSc.)

September 1, 2020

Bahir Dar, Ethiopia

IV

© 2020

EPHREM TILAHUN ZEGEYE

ALL RIGHTS RESERVED

VI

ACKNOWLEDGMENTS

In preparing this thesis, I was in contact with many people, researchers, academicians and

practitioners. First and foremost, my most grateful thanks go to the almighty God for

guiding and helping me in the completion of the program and to the extent of this thesis.

Secondly, I would like to express sincere gratitude and appreciation from the bottom of

my heart to my advisor Dr. Ahmed Mohammed for his great support, academic advice,

discussions, and suggestions.

I am highly acknowledged to Ato Zewdu Tefera for his valuable comments on this

research starting from the proposal, I am also thankful for Ms.Rahel Ayalew for her

constructive comments starting from the beginning up to the end of this my thesis and

my thanks also goes to Mr. Solomon. Melaku (PhD Candidate) for his best comments

and suggestions.

My deepest gratitude also goes to my mom Laway Motbaynor (the rock), my sister

Betelhem Tilahun, my big brother Yoseph Zelalem and his families, Yordanos Zelalem

and her families, Meskerem Nigusse (love) and Mr.Molla Munie for his constructive

comments and suggestions

I would like to express my appreciation to all organizations and individuals who

contributed directly or indirectly to this thesis and provided the necessary materials and

support for realization of this thesis. Especial thanks are forwarded to contractors,

consultants and client who sacrificed their time in filling the questionnaires.

VII

TABLE OF CONTENTS

ACKNOWLEDGMENTS ..................................................................................... VI

TABLE OF CONTENTS .................................................................................... VII

LIST OF ABBREVIATIONS ............................................................................. XII

DEFINITIONS OF TERMS ............................................................................. XIII

LIST OF FIGURES ............................................................................................ XIV

LIST OF TABLES ............................................................................................... XV

ABSTRACT ....................................................................................................... XVII

CHAPTER ONE ...................................................................................................... 1

INTRODUCTION ................................................................................................... 1

1.1. Background of the Research ............................................................................... 1

1.2. Problem Statement .............................................................................................. 3

1.3. Objectives and Research Questions .................................................................... 4

1.3.1. General Objective ................................................................................................... 4

1.3.2. Specific Objectives ................................................................................................. 4

1.3.3. Research Questions ................................................................................................. 5

1.4. Scope and Limitation of the Study ..................................................................... 5

1.5. Significance of the Study .................................................................................... 5

1.6. Methodology ....................................................................................................... 6

1.7. Organization of the Study ................................................................................... 6

CHAPTER TWO ..................................................................................................... 7

LITERATURE REVIEW ....................................................................................... 7

2.1. Concepts of Building Project Delay ................................................................... 7

2.1.1. Types of Project Delays .......................................................................................... 7

2.1.2. Effect of Project Delay ......................................................................................... 10

2.1.3. Mitigation Measures of Project Delays ................................................................ 11

2.2. Concepts of Liquidated Damage ...................................................................... 12

2.2.1. Construction Contract and Liquidated Damage ................................................... 13

2.2.2. Definition of Liquidated Damage ......................................................................... 14

2.2.3. Purpose and Function of Liquidated Damage Clauses ......................................... 15

2.2.4. The Benefits of Liquidated Damages ................................................................... 16

VIII

2.2.5. The Enforcement of the LDs Clause .................................................................... 17

2.2.6. The Un-enforcement of the LDs Clauses ............................................................. 18

2.2.7. Types of Delay Damages ...................................................................................... 19

2.2.8. Assessment of Liquidated Damage ...................................................................... 22

2.2.9. Difference between Liquidated Damages and Penalty ......................................... 22

2.2.10. Determination of Liquidated Damages Amount ................................................. 23

2.2.11. Provisions of Conditions of Contract ................................................................. 25

2.2.11.1. PPA, 2006 Conditions of Contract ........................................................................... 25

2.2.11.2. FPPA, 2011 Conditions of Contract ......................................................................... 25

2.3. Concepts of Prolongation Cost Claim .............................................................. 26

2.3.1. Introduction ........................................................................................................... 26

2.3.2. Time-Related Cost (Prolongation Cost) ............................................................... 27

2.3.3. Common Heads of Loss........................................................................................ 27

2.3.4. Common Heads of Prolongation Claim ................................................................ 28

2.3.5. Estimating Prolongation Cost ............................................................................... 31

2.3.6. Provisions for Prolongation Cost Claims under PPA and FIDIC Conditions of

Contract ........................................................................................................................... 32

2.3.6.1. Prolongation Cost Claim Provisions under PPA, 2006 Form of Contract .................. 32

2.3.6.2. Prolongation Cost Claim Provisions under FPPA, 2011Form of Contract ................ 33

2.4. Concepts of Extension of Time ........................................................................ 34

2.4.1. Purpose of Extension of Time .............................................................................. 34

2.4.3. Evaluating Extension of Time Claims .................................................................. 35

2.4.4. Information that needs to be considered in Evaluating Extension of Time

Application ..................................................................................................................... 35

2.4.4.1. Construction and Progress Records ............................................................................ 35

2.4.5. Common Mistakes by the Contractor in the Application of EoT ......................... 36

2.4.6. Extension of Time Submissions ........................................................................... 36

2.4.7. Issues in FIDIC MDB, 2010 Perspective on Prolongation of Cost and EoT ....... 38

2.4.8. PPA 2006 Conditions of Contract on Extension of Time..................................... 39

2.4.9. FPPA 2011 Perspective on EoT ........................................................................... 40

2.5 GAP Identification ............................................................................................. 41

IX

CHAPTER THREE ............................................................................................... 42

METHODOLOGY ................................................................................................ 42

3.1. Study Design ..................................................................................................... 42

3.2. Study Area ........................................................................................................ 43

3.3. Sample and Sampling Techniques .................................................................... 43

3.4. Target Populations and Sample Size Determinations ....................................... 44

3.5. Research Design Flow Chart ............................................................................ 46

3.6. Data Collection Method .................................................................................... 47

3.6.1. Questionnaire ........................................................................................................ 48

3.6.2. Documentation Review ........................................................................................ 48

3.6.2.1. Targeted Case Studies ................................................................................................ 48

3.6.3. Secondary Data Sources ....................................................................................... 49

3.7. Data Analysis .................................................................................................... 49

3.7.1. Spearman rank correlation coefficient .................................................................. 49

3.8. Research Validity and Reliability ..................................................................... 50

3.8.1. Research Validity .................................................................................................. 50

3.8.2. Research Reliability .............................................................................................. 50

CHAPTER FOUR .................................................................................................. 51

RESULTS AND DISCUSSION ............................................................................ 51

4.1. Reliability Testing ............................................................................................. 51

4.2. Spearman Rank Correlation Coefficient ........................................................... 51

4.3. Questionnaire Survey ........................................................................................ 52

4.3.1. Respondents General Information ........................................................................ 52

4.3.1.1. The Parties Where Respondents Were Working ........................................................ 52

4.3.1.2. Gender of Respondents ............................................................................................... 53

4.3.1.3. Respondents Job Position in the Company ................................................................. 54

4.3.1.4. Professional Experiences of the Respondents ............................................................ 54

4.3.1.5. Educational Qualifications of the Respondents .......................................................... 55

4.3.2. Issues Related with Liquidated Damage ............................................................... 55

4.3.2.1. Which Test of Liquidated Damage is Easy to Satisfy ................................................ 55

4.3.2.2. Recommendation for Parties to a Contract in the Event of Delays as an Alternative to

enhance the Enforcement of Liquidated Damage Clause ........................................................ 56

4.3.2.3. Possible Impacts of Liquidated Damage Clause in Building Construction Contracts 57

4.3.2.4. The practice of Contract Management Principles in Projects Concerning to

Liquidated Damage.................................................................................................................. 57

X

4.3.2.5. The Challenge of Liquidated Damage Provision in Court ......................................... 58

4.3.2.6. Organizations which follows an Established Cost Estimating Technique

/Methodology in Preparing Liquidated Damage. .................................................................... 59

4.3.3. Questions Related to Prolongation Cost Claims ................................................... 60

4.3.3.1. The Occurrence Level of Prolongation Cost Claim in BDU Building Construction

Projects .................................................................................................................................... 60

4.3.3.2. The Difficulty Level in Estimating Prolongation Cost Claim .................................... 61

4.3.3.3. The Clarity of handling Prolongation Cost Claims in the Clauses or Conditions of

Contract ................................................................................................................................... 62

4.3.4. Questions Related with Extension of Time Claims .............................................. 63

4.3.4.1. Average Delay of the Projects Exposed ..................................................................... 63

4.3.4.2. Action is taken when Projects are Getting Delayed ................................................... 63

4.3.4.3. Availability of Record-Keeping System in the Project .............................................. 64

4.3.4.4. Proper Documentation and Record-Keeping Systems can reduce the number of

Claims ...................................................................................................................................... 64

4.3.4.5. Lost Entitlement to a Claim due to Improper Documentation and Record-Keeping

Systems .................................................................................................................................... 65

4.3.4.6. Type of Claim Most Recent or Current Projects Face ................................................ 65

4.3.4.7. Reasons for Project Delay that Could Justify Extension of Time .............................. 66

4.3.4.8. Common Mistakes by the Contractor during the Request of Extension of Time ....... 66

4.3. Case Study on Extension of Time .................................................................... 68

4.3.1. Case Study-1 ......................................................................................................... 68

4.3.2. Case Study-2 ......................................................................................................... 70

4.3.3. Case Study-3 ......................................................................................................... 71

4.3.4. Case Study-4 ......................................................................................................... 73

4.3.5. Case Study-5 ......................................................................................................... 75

4.3.6. Case Study-6 ......................................................................................................... 77

4.3.7. Case Study-7 ......................................................................................................... 79

4.3.8. Case Study-8 ......................................................................................................... 80

4.3.9. Summary of the Major Reasons for Granted of Extension of Time Case Studies 82

4.4. Case - Study on Liquidated Damage ................................................................ 84

4.4.1. Case Study-1 for Liquidated Damage ................................................................... 84






XI


4.4.8. Sample Calculation for Liquidated Damage/ Penalty Amount for Case-Studies . 88

4.4.9 Summery of BDU Projects that Attracted Liquidated Damage ............................. 89

4.4.10. Analysis of Liquidated Damage Case-Studies ................................................... 90

4.4.11. Correlating the Questionnaire and Case Study Findings .................................... 91

CHAPTER FIVE ................................................................................................... 92

CONCLUSIONS AND RECOMMENDATIONS .............................................. 92

5.1. Conclusions ....................................................................................................... 92

5.2. Recommendations ............................................................................................. 93

5.3. Future Study ...................................................................................................... 94

REFERENCE ......................................................................................................... 95

APPENDIX-1: QUESTIONNAIRE ..................................................................... 99

APPENDIX-2: CLAUSES IN FIDIC MDB, 2010 CONCERNING WITH

EXTENSTION OF TIME AND PROLONGATION COST CLAIMS .......... 105

APPENDIX-3: CERTIFICATE OF PAYMENT OF LIQUIDATED

DAMAGE PAYMENT ........................................................................................ 110

APPENDIX-4: EXTENSION OF TIME CLAIMED AND APPROVED

DOCUMENTS ..................................................................................................... 112

APPENDIX-5: QUSTIONNAIRE RESPONDENT’S RII VALUES OF

RESPONSES ........................................................................................................ 114

APPENDIX-6: EXCELL CORRELATION COEFFICIENT BETWEEN

RESPONDENTS .................................................................................................. 117

APPENDIX-7: SAMPLE SIZE & TARGET POPULATIONS OF THE

STUDY ON-GOING BDU BUILDING PROJECTS ....................................... 118

XII

LIST OF ABBREVIATIONS

BDU …….. Bahir Dar University

BIT ……. Bahir Dar Institute of Technology

EoT …….. Extension of Time

FIDIC ……… Fédération Internationales des Ingénieurs Conseils

FPPA ……… Federal Public Procurement Agency

GCC ………General Conditions of Contract

G ………Contractor’s Extension of Time Granted

LD ……….Liquidated Damage

MDB ………Multilateral Development Bank

MoWUD ………Ministry of Works and Urban Development

PPA ………Public Procurement Agency

RII ………Relative Importance Index

RICS ………Royal Institution of Chartered Surveyors

R ……… Contractor’s Extension of Time Requested

SPSS …………Statistical Package for the Social Sciences

XIII

DEFINITIONS OF TERMS

Conditions of Contract: General terms and clauses of the contract concerning the duties,

obligations, liabilities etc. of both parties where it describes the guidelines to be employed

in contract administration.

Contract: A construction contract that comprise the letter of acceptance, contract

agreement, conditions of contract (general and particular), specification, drawings, BOQ

and any further documents (if any).

Compensable Delay: A compensable delay is a delay caused by the owner or its

representative in which additional time and costs should be granted to the contractor to

complete the project.

Excusable Delay: An excusable delay is defined as the delay caused by factors beyond

the control of the contractor or owner.

Extension of Time: It is a contractor’s time compensation for project completion with the

time he suffers loss due to causes outside his control.

Intended Completion Date: It is the date fixed by the contracting parties during contract

signing.

Liquidated Damage: Refers to an amount that contracting parties, at the time of

contracting, agree shall be payable as compensation in the event of a breach.

Prolongation Cost: Is the recovery of the actual loss that the contractor incurs as a result

of the employer’s delay event which causes a delay in the project completion date.

XIV

LIST OF FIGURES

Figure 2-1: Types of Project Delay ...................................................................................... 8

Figure 2-2: Cost Elements for Liquidated Damage ............................................................ 24

Figure 3-1: Research Design and Flow Chart .................................................................... 46

Figure 4-1: The Parties Where Respondents Working ....................................................... 53

Figure 4-2: Respondents Job Position ................................................................................ 54

Figure 4-3: Educational Qualification of the Respondents ................................................ 55

Figure 4-4: Challenge of Liquidated Damage Provision in Court ..................................... 58

Figure 4-5: Organizations which follows an Established Cost Estimating Technique in

Preparing LD ...................................................................................................................... 59

Figure 4-6: Occurrence Level of Prolongation Cost Claim ............................................... 60

Figure 4-7: Clarity of handling Prolongation Cost Claims in Conditions of Contracts ..... 62

Figure 4- 8: Average Delay of Projects Exposed ............................................................... 63

Figure 4-9: Action is taken when Projects are Getting Delayed ........................................ 63

XV

LIST OF TABLES

Table 2-1: Effects of Project Delay .................................................................................... 11

Table 2-2: Mitigation Measures of Project Delays ............................................................ 11

Table 2-3: Project Delay Damages ..................................................................................... 19

Table 2-4: Compensation Clauses in PPA, 2006 Conditions of Contract .......................... 32

Table 2-5: Issues in FIDIC MDB, 2010 perspective on prolongation Cost Claim and EoT

............................................................................................................................................ 38

Table 3-1: Sample Size & Target Populations of the Study On-going BDU Building

Projects ............................................................................................................................... 45

Table 4-1: Reliability Testing ............................................................................................. 51

Table 4-2: Correlation Coefficient of the Agreement between the Parties in Rankings .... 52

Table 4-3: Gender of Respondents ..................................................................................... 53

Table 4-4: Professional Experiences of Respondents ........................................................ 54

Table 4-5: Tests of Liquidated Damage Easy to Satisfy .................................................... 55

Table 4-6: Alternatives to enhance the Enforcement of the Liquidated Damage Clause .. 56

Table 4-7: Possible Impacts of Liquidated Damage Clause in Building Construction

Contracts ............................................................................................................................. 57

Table 4-8: Practice of Contract Management Principles Concerning the Liquidated

Damage ............................................................................................................................... 57

Table 4-9: The Difficulty Level in Estimating Prolongation Cost Claim .......................... 61

Table 4-10: Availability of Record-Keeping Systems in the Projects ............................... 64

Table 4-11: Proper Documentation and the Record-Keeping System can reduce no. Claims

............................................................................................................................................ 64

Table 4-12: Lost Entitlement to a Claim due to Improper Documentation and Record-

Keeping Systems ................................................................................................................ 65

Table 4-13: Types of Claims Most Recent or Current Projects Faced ............................... 65

Table 4-14: Reasons for Project Delay that Could Justify Extension of Time .................. 66

Table 4-15: Common Mistakes by the Contractor during the Request of Extension of Time

............................................................................................................................................ 66

Table 4-16: Case Study-1 for EoT ..................................................................................... 69

Table 4-17: Case Study-2 ................................................................................................... 70

Table 4-18: Case Study-3 ................................................................................................... 72

XVI

Table 4-19: Case Study-4 ................................................................................................... 74





Table 4-24: Summary of the Major Reasons for Granted of Extension of Time Case

Studies ................................................................................................................................ 82

Table 4-25: Frequency of Major Reasons for Granted of Extension of Time Case Studies

............................................................................................................................................ 83

Table 4-26: Summery of BDU Projects that Attracted Liquidated Damage ...................... 89

XVII

ABSTRACT

The aim of this study is to focus on the practice and implementation of prolongation cost

claim, liquidated damage and extension of time in public building construction projects in

relation to legal and contractual regulations currently implemented in building

construction contracts in Bahir Dar University Building Construction Projects. A thorough

literature review was conducted to study and identify issues related to prolongation cost

claim, liquidated damage and extension of time that are important for designing the

methodology and closed ended questionnaire together with documentation review

developed as a primary strategy for data collection methods. Fifty four respondents’ were

selected for this study Samples for this study comprised of professionals working in Bahir

Dar University (public employer), consultants and contractors who are actively

participating in Bahir Dar University Building Construction Projects. From 50

questionnaires distributed a total of 45 responses were collected with a return rate of 90%,

a descriptive statistical method by using SPSS 21, Relative Importance Index and

correlation coefficient were used for the analysis of the data collected through

questionnaire survey. The questionnaire respondents stated, the major reasons for project

delay that could justify extension of time were ranked late instructions or drawing, delay

in giving possession of site and exceptionally inclement weather respectively. In case-

studies, the main reasons for project delay that could justify extension of time were ranked

late instructions or drawing, late possession of site and additional works respectively. The

damages related to prolongation cost claim are extended and increased site costs (site

overheads or preliminaries), head office overhead cost, inefficiency/ lost productivity cost,

financial charges and interest, inflation, loss of profit/ opportunity cost and claim

preparation costs. Liquidated damage clause is the common mechanism used in Bahir Dar

University building projects to compensate the Owner for losses caused by delays that are

the fault of the contractor.

Keywords: Extension of Time, Liquidated Damage and Prolongation Cost Claims

1

CHAPTER ONE

INTRODUCTION

1.1. Background of the Research

According to Majid, (1997) the construction industry in many developing countries plays

an important role in the national economy, and its contribution to gross national product

and employment have a major role. Despite this important role, the construction industry

is still largely inefficient, especially regarding contract management, as characterized by

lengthy payment delays, cost and time overruns, and poor project implementation.

There are many types of contract forms in the administration of civil engineering projects.

According to (Werku, 2016) the most common ones and those widely used in the

Ethiopian construction industry include the following format:

Re-Measurement form of Contract: In this form of contract, the contractor is paid

based on the amount of work executed, as compared to the prices detailed in the BOQ.

This is the most widely used form of contract in Ethiopia for both local and

international contracts.

BOT form of Contract: This is a form of contract where the contractor builds,

operates and turns over (BOT) the project to the Employer for a fee.

Turnkey Projects: This form of contract, also called EPC-contract (Engineer,

Procure, and Construct Contracts) is a form of contract where the contractor is

responsible for the design and building of the project. Such forms of contract are

particularly suitable for electro-mechanical contracts.

Lump Sum form of Contract: In this form of contract, the contractor agrees to do the

job for a fixed sum. In this case the contractor is responsible for the preparation of all

details.

2

According to Glazov, (2009) stated as building projects often cost more and takes longer

than originally planned. Delays may occur for example because the contractor was

working inefficiently, which is its (Majid, 1997) own fault, or because the employer

instructed additional work, for which the contractor will be entitled to an additional

payment.

Failure to achieve: targeted time, budgeted cost and specified quality result in various

unexpected negative effects on the projects. Usually, when the projects are delayed, they

are either extended or accelerated the time and therefore, invite to the additional cost

(Hamzah, 2011).

According to Werku, (2016) elaborated as liquidated damages are not penalties, they are

pre-determined damages set at the time that a contract is entered into, based on a

calculation of the actual loss the client is likely to incur if the contractor fails to meet the

completion date.

According to FIDIC Red Book the basic Clause for the Contractor to claim an extension

of time is Clause 8.4. It is there to allow the Contractor to point out where he has been

delayed by reasons beyond his control.

There are two types of delay non-excusable delays and excusable delays. A non-excusable

delay is delay caused by the contractor or its suppliers, through no fault by the owner. The

contractor is generally not entitled to relief and must either make up the lost time through

acceleration or compensate the owner. Therefore, non-excusable delays usually result in

no additional money and no additional time being granted to the contractor (Ahmed,

2014).

Construction projects have tended to become more time-constrained and the ability to

deliver these projects on-time is an important element that should be given special

attention. The different building construction contracts signed between two contracting

parties may face many problems like claims coming from both sides (Chan, 2003).

3

Like many cases in building construction industry indicate, problems regarding to poor

management of claims especially related to prolongation cost claims, liquidated damages

and extension of time, this cases could take high percentage of the construction industry

problems because it directly affects the performance, quality, and cost of a project which

will also affect the future construction endeavors (Eggleston, 2009).

A contractor’s timely performance in the construction arena is of essential importance on

both public and private projects to an owner. When a contractor caused delay occurs, and

the project extends beyond the specified contract completion date, the owning agency

suffers damages associated with loss of revenue as well as additional administrative,

engineering and inspection costs (Samuel B. , 2014).

An EoT provision is inserted in a construction contract for the benefit of both the

employer and the contractor, its insertion is primarily for the advantage of the employer. If

there was no EoT provision, once the employer had caused delay to completion of the

works, it would no longer be able to reply on the liquidated damages provision in the

contract. In such circumstances, the contractor’s obligation would be to complete within a

reasonable time in all of the circumstances (Gibson, 2008).

Invariably an evaluation of extension of time (EoT) will be made based on the information

submitted by the contractor such as work program and architect’s instructions. Lack of

information of delay is one of the common mistakes by the contractor in the application of

EoT and this can lead to obstacles in prompt settlement of claims for EoT. (Christopher A.

Mair & Paul J. Ferak, 2017)

1.2. Problem Statement

A thesis conducted by Samuel S., (2015) out of 22 Bahir Dar University projects, 10

projects has claim extension of time and got approval for various reasons. The findings of

the research showed that, from 6,956 days of contract time of those projects which request

a time extension, 2,595 days of extension of time is approved, which is 37.3% from their

contract time. This means half of Bahir Dar University projects are extending their

completion time by an average of 37.3%, more than one -third of their contract time.

4

The findings of Samuel B., (2014) showed that; incomplete recording and documentation,

unclear estimation methods and contractual provision are the main problems in justifying

time delay and estimation of prolongation cost compensation. The practice of data

collection and documentation becomes a problem due to the lack of competent and

experienced professionals and lack of awareness.

This may lead to loss of capital as well as the loss of capital recovery to the client. The

contractor may also be faced with the difficulty of maintaining a workforce, repaying of

bank loans and collateral and others. Therefore, this thesis would rather go through

assessing the practice and implementation of prolongation cost claim, liquidated damage

and extension of time in building construction contracts on how it is currently and on how

it should be in the future.

1.3. Objectives and Research Questions

1.3.1. General Objective

The general objective of this study is to assess the practice and implementation of

Prolongation Cost Claim, Liquidated Damage and Extension of Time in terms of legal and

contractual regulations from the sides of both local and international conditions of contract

and their implication on Building construction contracts.

1.3.2. Specific Objectives

To show the types of contractor’s cost claims related to project prolongation.

To assess the implementation of liquidated damage clauses in Bahir Dar University

Building Projects.

To point out the major reasons for project delay that could justify the extension of

time.

To come up with conclusions and offer recommendations to encounter the problems

related to implementation of liquidated damage, prolongation cost claims and

extension of time in BDU projects.

5

1.3.3. Research Questions

What are the types of contractor’s cost claims related to project Prolongation?

Is the Liquidated Damage clause implemented in Bahir Dar University Projects?

Are there major reasons for project delay that could justify the Extension of Time?

1.4. Scope and Limitation of the Study

This thesis limited to assessing the practice and implementation of Prolongation Cost

Claims, Liquidated Damage and Extension of Time in Bahir Dar University Building

Construction contracts with regard to identifying the procedures of enforcing contractual

liability to the respective parties involved in the contract.

Thus the scope of this paper specifically focuses on practice and implementation of

Prolongation Cost Claim, Liquidated Damage and Extension of Time issues in Bahir Dar

University building construction projects through taking a Case Study approach.

The major limitation of this study was it focused on only Bahir Dar University Building

Projects and the outputs of this thesis for those projects only, the thesis focused only on

this projects due to good documentation practices in this projects this may help the

researcher collect in data’s and information easily.

1.5. Significance of the Study

This study will have the following benefits:

It may help for contractor’s to have knowledge about how to claim prolongation cost

by suggesting the types of contractor’s cost claims during project prolongation.

With this study, the contractor could indeed benefit from this study’s outcome about

the improvement of the preparation for EoT application in order to speed up the

evaluation of the architect to establish contractor’s entitlement for EoT and to avoid

disputes about contractor’s entitlement for EoT.

It may also help for construction consultants how an extension of time is given

according to the construction contract and according to the conditions of contracts.

It may also give for owners the major reasons for project delay related with intended

completion time considering before construction bid floats by reduction of late

instructions and fix possession of site problems.

6

1.6. Methodology

Similar questionnaire was administered to professionals in client, consultant and

contractor organizations in contract administration roles, to explore their experiences in

the assessment of practice and implementation of prolongation cost claims, liquidated

damage and extension of time in building construction contracts.

Data for this research was collected through a questionnaire survey and documentation

review data collecting methods, targeting construction professionals practicing with

construction public client (Bahir Dar University), consultant and contractor organizations

who are actively participating in Bahir Dar University building construction projects.

1.7. Organization of the Study

This thesis consists of 5 chapters followed by an overall introduction. The second chapter

reviews relevant literature and provides a theoretical rational for the study. The third

chapter is on methodology where participants of the study, instruments of data collection

and analysis employed in this study are discussed. The fourth chapter contains the main

study data analysis, findings and discussions of results. The last chapter of this study

provides the summary, conclusions and recommendations.

7

CHAPTER TWO

LITERATURE REVIEW

2.1. Concepts of Building Project Delay

Delay can be defined as a time overrun or extension of time to complete the project.

Therefore delay is a situation when the actual progress of a construction project is slower

than the planned schedule or late completion of the projects. Failure to achieve: targeted

time, budgeted cost and specified quality result in various unexpected negative effects on

the projects. Usually, when the projects are delayed, they are either extended or

accelerated the time and therefore, invite to the additional cost ( P. J. Keane & A.

F.Caletka, 2008).

Construction delay is a major problem facing the construction industry. In most

construction projects, there are delays and their impact level varies from project to project

ranging from a few days to years. It is generally understood that the construction delay is

the most critical factors affecting to deliver the project in time, within budget, and

expected quality. It can be found rarely that a project was completed within the specified

time ( P. J. Keane & A. F.Caletka, 2008).

According to Endale, (2016) ten major causes of delay in the construction of 40/60 saving

houses project were late material supply, financial difficulties faced by the contractor,

problem of electric supply, problem of water supply, equipment unavailability, delayed

payments to contractors, poor site management, ineffective planning and scheduling, late

design review and approval, and slowness in decision making process.

2.1.1. Types of Project Delays

Not all delays that affect the critical path are grounds for a time extension or added

compensation for the contractor, of course. Whether the contractor will be entitled to

additional time or compensation for a critical path delay depends on which party is

responsible for creating the delaying event, or has otherwise taken responsibility for it

under the terms of the contract.

According to the report of Wesley C. Zech et.al (2008), construction delays are

categorized as: excusable, compensable and/or non-compensable and non-excusable.

8

In addition Hamzah ,(2011) stated types of project delays in figure 2-1:

Figure 2-1: Types of Project Delay

(Source: (Hamzah, 2011))

A. Excusable Delay

An excusable delay is defined as the delay caused by factors beyond the control of the

contractor or owner. Delays caused due to severe weather, labor disputes, acts of God,

war, and so forth are classified as excusable delays since these delays excuse the

contractor from meeting a contract completion date. Thus, in the event of an excusable

delay, additional time is granted to the contractor. In Raiha (2015) this condition the

contractor may claim for extension of time only.

"Excusable Delay" means any delay of the completion of the Project beyond the

expiration of the Contract time caused by conditions beyond the control and without the

fault or negligence of the Contractor such as strikes, embargoes, fire, unavoidable

casualties, unusual delays in transportation, national emergency, and stormy and inclement

weather conditions in which the work cannot continue. The financial inability of the

Contractor or any subcontractor and default of any subcontractor, without limitation, shall

not be deemed conditions beyond the Contractor's control. An Excusable Delay may

entitle the Contractor to an adjustment in the Contract time (Paul W. Taylor et. al, 2011).

B. Compensable and Non-compensable Delay

A compensable delay is a delay caused by the owner or its representative in which

additional time and costs should be granted to the contractor to complete the project.

Types of Delay

Non-compensable Compensable

Excusable Delay

Non- Excusable

Delay

Concurrent Delay

9

In this regard, the contractor may claim both the extension of time and the additional cost

he incurred. Paul W. Taylor et. al, (2011), defined in another expression as "Compensable

Delay" means any delay of the completion of the work beyond the expiration date of the

Contract time caused by the gross negligence or willful acts of the City, and which delay

is unreasonable under the circumstances involved, and not within the contemplation of the

parties. A Compensable Delay may entitle the Contractor to an extension of the Contract

time and/or Contract price. Except as provided herein, the Contractor shall have no claim

for damage or compensation for any delay, interruption, hindrance, or disruption.

Also Allen, (2012) defined Compensation delay as events that entitle the contractor to an

extension of time and to prolongation costs flowing from that event.

In a compensable delay, the owner is responsible for both the time and cost effect of the

delay. The contractor may claim the owner interfered with the work, did not deliver

owner-purchased equipment or supplies on site as promised, or that the owner’s actions or

inaction caused other delays. An owner cannot contract out of its obligation to pay for

compensable delay, although it may be able to limit its liability for such delays (Shaikh,

2009).

Non-compensable delays are caused by third party or force majeure. Contractor is

normally entitled to a time extension but no compensation for delay damages. Examples

include an official prohibition preventing the performance of the contract, a natural

catastrophe such as an earthquake, lightning or flood, international or civil war and the

death or a serious accident or unexpected serious illness of the contractor (Endale, 2016).

As Shaikh, (2009) further discussed with the issue of change order by the client is the

most common factor that is responsible for causing a compensable delay to a project. The

issuance of the change order affects the work that has been already done.

10

C. Non-Excusable Delay

A non-excusable delay is caused by the contractor or its subcontractor that affects the

project completion and additional time is not granted by the owner. At this event, the

client can claim for liquidated damage from the contractor or he will terminate the

contract. In another way, this is an event which is defined as events that do not entitle the

contractor to either time or money Allen ,(2012) in addition to Allen, Paul W. Taylor et.

Al (2011) "Non-excusable Delay" means any delay of the completion of the Project

beyond the expressed as expiration of the Contract time resulting from causes other than

those listed above. A Non-excusable Delay shall not entitle the Contractor to an extension

of the Contract time or an adjustment of the Contract price.

As Hamzah, (2011) stated non-excusable delay is a delay caused by the contractor or its

suppliers, through no fault by the owner. The contractor is generally not entitled to relief

and must either make up the lost time through acceleration or compensate the owner.

Therefore, non-excusable delays usually result in no additional money and no additional

time is granted to the contractor.

Any delay to the project which is solely due to the contractor is regarded as a non-

excusable delay. It becomes the responsibility of the contractor and entirely his risk for the

delay and the owner is entitled to claim any delays to the project in line with the terms and

conditions as stipulated in the contract (Shaikh, 2009).

2.1.2. Effect of Project Delay

In the process of determining the effect of a delay on the Project, the analyst must

determine whether the delay is critical or noncritical. The analyst must also assess if

delays are concurrent. All delays that are identified in the analysis will be either excusable

or non-excusable. Delays can be further categorized into compensable or non-

compensable delays ( Theodore, 2009).

11

Generally, from the previous researches, the researcher found the following effects of

delays in construction projects and summarized in the table 2-1.

Table 2-1: Effects of Project Delay

1. Effects of project delay Effects

Time overrun

Budget overrun

Poor quality completed project

Bad Public Relations

Litigation

Disputes and claims

Total abandonment

2.1.3. Mitigation Measures of Project Delays

According to Majid, (1997) stated that delays can be minimized when their causes are

identified. Identification of the factors that contributed to the causes of delays has been

studied by numerous researchers in several countries. Delay is a situation when the

contractor, consultant, and client jointly or severally contributed to the non-completion of

the project within the original or the stipulated or agreed contract period.

Based on several studies of project success factors and rectification of delays in the

construction project, a total of 9 methods have been identified in table 2-2:

Table 2-2: Mitigation Measures of Project Delays

N.o Methods

1 Frequent progress meeting

2 Use up-to-date technology utilization

3 Use proper and modern construction equipment

4 Use appropriate construction methods

5 Effective strategic planning

6 Proper material procurement

7 Accurate initial cost estimates

8 Clear information and communication channels

9 Frequent coordination between the parties involved

(Source: (Majid, 1997))

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2.2. Concepts of Liquidated Damage

Traditionally, litigation is the route to recovering costs incurred by a client due to late

completion. The inclusion of Liquidated Damage provisions in construction contracts,

therefore, avoids delays inherent in the use of litigation and its associated costs (M.M.

Tuuli, 2007).

According to the work of Theodore, (2009) the inclusion of a liquidated damages clause

does not affect Contractor bids. Contractors recognize that with or without a liquidated

damages clause, they are still liable for actual damages should they finish late. Therefore,

during Project performance, the liquidated damages clause may not be a motivating factor.

As Tecle Hagos & Mahelet Shewangzaw, (2009) pointed out that in our country Ethiopia,

whilst the penalty clause is regulated under the Civil Code Articles 1889- 1894, there is no

rule, directly or indirectly, regulating the doctrine of liquidated damages clauses. Recent

developments in Ethiopia, however, witness that in all major government construction

contracts, the liquidated damages clause is incorporated.

Therefore, in practice as the contractor is obliged to produce 10% of the contract price as a

performance bond to the Procuring Entity, then, for each day of delay on the part of the

contractor in completing the work, 0.1% of the contract price is meted out against the

contractor as a penalty until the penalty amounts to 10% of the contract price; that being

the Performance Bond. Thus, when the penalty amounts to 10% of the contract price, the

employer terminates the contract in addition to the appropriation of the performance bond

(Tecle Hagos & Mahelet Shewangzaw, 2009).

According to Glazov, (2009) mentioned that LDs are a daily monetary rate stipulated in a

contract to compensate the owning agency for additional costs incurred as a result of a

project extending beyond its completion date due to a non-excusable delay. LDs may be

based upon a reasonable forecast of a loss of actual damages to the owning agency if the

project is not completed on time. The purpose and intent of the LDs clause are to

compensate the owning agency for additional costs associated with the late completion.

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2.2.1. Construction Contract and Liquidated Damage

In construction contracts, a provision granting liquidated damages for each day's delay is

an appropriate means of inducing performance or of providing compensation when either

party fails to perform. Eggleston, (2009) the liquidated damages provision, by setting a

fixed rate of compensation, serves as an estimate of damages that would be sustained by

the owner regardless of the nature of a delay, rather than as a means of compensating for

the breach of a particular component of the contract.

In the construction industry, owners and contractors frequently attempt to apply liquidated

damages to project delays, stipulating a payment by the contractor or withholding by the

owner for each day after the scheduled completion date. (Tyler, 1994)

In other words FPPA, (2011) stated, liquidated damage as the compensation stated in the

contract as being payable by Contractor to the Public Body for failure to perform the

contract or part thereof within the periods under the contract, or as payable by Contractor

to the Public Body for any specific breach identified in the contract.

Regulating, in advance, the potential damages that either of the contracting party may

suffer, as the consequence of the other party’s failure to perform its contractual

obligations, is the order of the day in the construction industry. In Ethiopia, for example, it

is now fully being put in use in all government construction contracts. The Doctrine might

have made its entry into the Ethiopian Construction Laws via the FIDIC (Red Book) Form

(Tecle Hagos & Mahelet Shewangzaw, 2009).

In addition, Tecle Hagos & Mahelet Shewangzaw, (2009) further stated about liquidated

damage clauses were that the provision for liquidated damages excludes the employer’s

right to claim additional damages even if it can show that the damage it has actually

suffered exceeds the provision for liquidated damages in the contract.

In construction contracts, a provision granting liquidated damages for each day's delay is

an appropriate means of inducing performance or of providing compensation when either

party fails to perform. As long as the amount designated as liquidated damages is a

reasonable expression of the parties' intent at the time of the contract, the fact that no

actual damages are ultimately suffered by the parties is irrelevant (Eggleston, 2009).

14

According to Glazov, (2009) given the number and variety of duties assigned to the

contractor, potential actual damages are incapable of being precisely ascertained at the

time the contract is made. The liquidated damages provision, by setting a fixed rate of

compensation, serves as an estimate of damages which would be sustained by the owner

regardless of the nature of a delay, rather than as a means of compensating for the breach

of a particular component of the contract.

2.2.2. Definition of Liquidated Damage

According to Kingsley, (2013) in all contracts, whether commercial or construction

contracts, breach often occurs due to failure of one contracting party to fulfill its

contractual obligations, and in law, the party, which commits a breach of contract, is

required to pay damages to the other party.

A. Definition of Liquidated Damage

As Richard, (2010) defined liquidated damage in the following ways:

A LDs provision is a stipulation in a contract for a fixed sum to be paid as damages for

breach of the contract.

A failure by the contractor to achieve practical or substantial completion in accordance

with the contract (as extended by extensions of time) and assuming that there has been

no prevention, would generally result in the contractor being obliged to pay LDs.

o A LDs sum has two essential elements: it is fixed by the contract and it is due for

payment by the defendant.

A typical LDs clause provides that if the contractor fails to complete by a date

stipulated in the contract, or any extended date, he shall pay or allow the employer to

deduct LDs at the rate of money per day or week for the period during which the

works are incomplete.

LDs are an agreed pre-estimate of loss and damage specified in the contract for each

day that the date of practical completion exceeds the date for practical completion.

B. LDs and Government Contracts

In his work Richard, (2010) stated as one of the tests for determining whether a LDs

clause is valid is whether it could be said that the amount specified in the clause is a

genuine pre-estimate of the loss flowing from the particular breach that triggers the clause.

15

The courts apply this test at the time of contract formation so that it is necessary to be able

to show that some attempt was made to calculate the amount at the time of drafting the

contract.

The courts have responded to this problem by recognizing the difficulty and waiving the

genuine pre-estimate requirement in government contracts when it is impossible to make

such an estimate. This does not mean that the courts no longer regulate LDs clauses in

government contracts. The agreed damages must still not be unconscionable in amount.

But the genuine pre-estimate test will not be applied where it is impossible to apply (

Richard, 2010).

2.2.3. Purpose and Function of Liquidated Damage Clauses

A. Purpose of Liquidated Damage Clauses

It has suggested that LD provision is inserted in contracts to serve a number of purposes (

Richard, 2010):

It provides certainty to both parties concerning the measure of damages that will flow

in the event of a breach.

Provide an incentive to perform the contract in a timely manner.

Permit a contractor on a project that is running behind time to undertake a cost-benefit

analysis of whether it is more commercially beneficial to pay LDs or incur the

additional costs of accelerating the works in order to make up the lost time.

It simplifies the process of assessing damages for delay, without the necessity of

difficult proofs and the expense of establishing what actual loss has been incurred.

This is relevant to contracts, particularly construction contracts, where there may be

great difficulty in proving the extent of the actual loss incurred by reason of delay.

B. The Function of Liquidated Damage

Liquidated damages are therefore a reasonable pre-estimate of the loss the employer

anticipates he will suffer if the contractor completes late. Its advantage is that the

contractors know in advance the extent of risks they are taking and employers do not have

the expense and difficulty of proving their loss item by item (Eggleston, 2009).

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2.2.4. The Benefits of Liquidated Damages

Liquidated damages provision offer several benefits to the contracting parties, as well as

the legal system. The enforcement of liquidated damages saves the time of courts, juries,

parties, and witnesses, all while reducing the expense of litigation. Liquidated damages

provisions can add predictability by providing an agreed-upon damage amount for certain

types of breaches. They can promote a quicker, earlier resolution of a dispute since the

damages result has already been determined. The following are among the benefits of

liquidated damage provision.

A. Liquidated Damages Promote Efficiency

Liquidated damages promote efficiency by eliminating a party’s need to prove

compensatory damages after one party’s breach. The use of a liquidated damages

provision eliminates the time and expense of retaining experts and having to engage in

protracted legal proceedings to determine actual damages (Christopher A. Mair & Paul J.

Ferak, 2017).

B. Liquidated Damages Add Predictability

Parties to a contract have a vested interest in participating in a system that operates and

resolves disputes in a way that stakeholders may anticipate, understand, and predict based

on prior applications of the law. General consensus holds that more predictable courts

function to provide better balance and cohesion for the determination of rights, and

provisions like liquidated damages clauses have consistently affirmed the idea that parties

prefer more certainty over less certainty in business dealings (Christopher A. Mair & Paul

J. Ferak, 2017).

C. Liquidated Damages Promote Settlement

A liquidated damages provision may encourage an early settlement due to the mere

presence of the amount specified in the provision. The leverage created by a valid and

enforceable liquidated damages provision can cause disputes to settle that may otherwise

be litigated (Christopher A. Mair & Paul J. Ferak, 2017).

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2.2.5. The Enforcement of the LDs Clause

According to Kingsley, (2013) explained that not all liquidated damages clauses are

enforceable and added, cited that for liquidated damages clause to be enforceable it must

satisfy a three-part tests.

First, the parties must intend to liquidate (i.e., stipulate to the amount) the damages in

advance.

Second, the damages anticipated as a result of the contract breach (such as a

contractor’s delay) must be uncertain in amount or difficult to prove.

Third, the amount stipulated must be reasonable, that is to say, not greatly

disproportionate to the anticipated loss or injury.

As Tuuli et al. (2007) found out that, LDs are not serving their purpose in construction

contracts in Ghana. Clients have created situations that render LDs unenforceable. LD

amounts are also not genuine pre-estimates of expected loss to be incurred, as assumptions

and guesses rather than genuine calculations on a case-by-case basis are adopted in their

assessment.

This came up with the following as "criteria" or factors to consider when addressing

"liquidated damages" provisions: (Schmidt and Facundo, 2008) as cited in (Kingsley,

2013).

The use of the words "penalty" or "liquidated damages" in the contract is not

conclusive or determinative of whether it is, in fact, one or the other. The Court must

find out whether the payment stipulated is in truth a penalty or liquidated damages. In

other words, the parties' attempt to call it "liquidated damages" is not conclusive and

the Court can still determine that it is a penalty.

The essence of a "penalty" is a payment of money stipulated as against the offending

party; the essence of "liquidated damages" is a genuine covenanted pre-estimate of

damages to the innocent party. The key issue for the penalty and LD is the actual loss

incurred due to the breach by the offending party and further, whether it is fair and

reasonable.

18

According to Christopher A. Mair & Paul J. Ferak, (2017) stated a liquidated damages

provision will be enforced if:

It appears that the parties intended to liquidate damages.

At the time of contracting, the number of damages specified was a reasonable estimate

of the presumed actual damages that would result from a breach.

At the time of contracting, it was difficult to ascertain the number of damages that

would result from a breach.

Thus, for the purpose of establishing each of these elements, it is important to draft the

agreement with keeping the following key considerations in mind (Christopher A. Mair &

Paul J. Ferak, 2017):

Language and Labels Can Matter: the simplest way to help demonstrate that the

liquidated damage provision is intended to be compensatory, rather than punitive, is to

explicitly state the intent in the clause itself.

Specify the Type of Breach to Which the Liquidated Damages Provision Applies:

including an explanation of the type(s) of breach that would give rise to the liquidated

damages provision helps convey the parties’ specific intent to utilize liquidated

damages for a particular breach and also ensure that liquidated damages are being used

only when determining damages would otherwise be difficult to do.

Choose Situations When Calculating Damages Would Be Difficult to do: courts will

enforce liquidated damages when it would be difficult to assess damages for a

particular breach. Likely candidates for enforceable provisions include those intended

to cover potential lost profits or other prospective damages that would be difficult to

determine based on the surrounding circumstances.

2.2.6. The Un-enforcement of the LDs Clauses

As Kingsley, (2013) mentioned in addition to being unenforceable as a penalty, liquidated

damages can also be void for uncertainty or unenforceable because they breach the

prevention principle. Void for uncertainty means, as the term suggests, that it is not

possible to determine how the liquidated damages provisions work. In those

circumstances, a court will void the liquidated damages provisions.

19

If a Contractor completes a Project late and is assessed liquidated damages by the Owner,

it is possible that the assessment may be challenged. There are two basic approaches that a

Contractor may use to overcome the assessment of the liquidated damages. First, he may

attack the propriety of the assessment by disclaiming responsibility for the delay. Second,

the Contractor may claim that the specified amount of the liquidated damages is excessive

and, consequently, acts as more of a penalty than a damages compensation ( Theodore,

2009).

2.2.7. Types of Delay Damages

Delay damages are summarized in table 2-4, although not all may be recoverable. He did a

thorough review of these costs as followed by various kinds of damages to which

Contractors may be entitled to excusable and compensable delays.

Table 2-3: Project Delay Damages

Extended and increased field

Costs

These damages include the additional labor, material,

and equipment costs resulting from project delays. These

costs are typically quantified and supported by actual

measurements of increased units and/or rates.

Home office overhead

When a project is delayed, the Contractor may

experience un-absorbed and un-recovered over-head

costs. Generally, the Contactor’s home office costs that

support all projects are allocated to the delayed project

and recovered based on a daily rate applied to

compensable days of delay.

Inefficiency or lost

Productivity Costs

Depending on the nature of the delay, a contractor may

also experience some measure of inefficiency. The

resulting increased labor and equipment costs maybe

included within the damage claim.

Acceleration Costs

When the labor force is accelerated to mitigate delays,

the resulting increased labor, and equipment costs may

also be included within the damage claim.

Other Categories of Delay

Damages

A delay claim may include other related damages such as

non-critical Delays, legal and Consulting Costs, lost

Profits, lost opportunity Costs/Bonding impairment,

Constructive acceleration, interest, and other impacts.

(Source: ( Theodore, 2009))

20

A. Extended Field Costs

Depending on the Project-specific circumstances, when a Project encounters a delay, the

Contractor would typically retain its supervisory team at the job site, personnel such as the

Project Manager, Project Engineer. These personnel represent a direct labor cost to the

contracting firm ( Theodore, 2009). He further discussed how to calculate the delay-

related direct labor cost to maintain these people on-site, add the daily cost of each staff

member’s salary, including burden, and then multiply that sum by the number of days of

excusable and compensable delay.

Idle Labor

Another category of delay-related labor costs that might arise is idle labor. If a project is

delayed or suspended, the Contractor’s workers may be at the Project site but may be

unable to productively work. For potential recovery of this type of cost, the Project daily

reports need to show that the Contractor’s workers were on the site but were unable to

perform their work. The Owner would appropriately question why the Contractor was

unable or unwilling to shift those workers to other tasks or other jobs or lay them off.

Escalation of Labor Costs

Typically, the contractor is responsible for the risk related to fluctuations in labor,

equipment, and material costs during the project. However, if a contractor’s operation is

delayed by the compensable delay from one labor agreement period to another, causing

the contractor to pay a higher hourly wage rate, the contractor may be entitled to

additional compensation (Nagata, 2013).

Equipment Costs

A Contractor’s equipment costs on a Project can also be affected by a delay. For example,

delays may cause the equipment to be idle. The amount of damages that can be claimed

for idle equipment depends on the Contract provisions. In some cases, the Contract may

address idle or standby equipment and allow only a reduced rate or no compensation at all.

If the contract is silent on this issue, the Contractor would likely claim damages at the full

rates of the equipment during the idle time.

21

Material Costs

The most common added material cost caused by a delay is price escalation. Because of

the delay, the Contractor is forced to buy materials to be incorporated into the work in a

period when the price has increased. The calculation of escalation cost for materials can be

performed in the same manner as that for the escalation of labor costs. A comparison must

be made between the quantity of each material that would have been purchased in the

original schedule and the quantity of each material purchased later under the delayed

schedule.

Storage Costs

According to Nagata, (2013) further discussed extended field overhead costs (also called

field office or Jobsite overhead costs) are, by definition, costs that increase due to a critical

and compensable delay.

B. Effects of Delays on Home Office Costs

A Contractor typically includes in its bid price for a particular Project a percentage

markup through which it will recover some portion of its home office overhead. If this

Project were to then experience a delay, Project revenues may be earned over a longer

period of time, disrupting the basis under which the Contractor originally allocated its

home office overhead costs ( Theodore, 2009).

Generally, home office overhead costs in a delay situation can represent a significant

percentage of the overall delay damages. Owners should carefully consider this fact in

drafting their construction contracts. Some Owners prevent problems in this area by

defining in the Contract the allowable damages for delays, including a computation for

home office overhead, if any ( Theodore, 2009).

Summary of Home Office Overhead Cost Calculation

Home Office Overhead is also well-known, but not well-understood delay damage and

like an extended field, overhead is only caused by a critical project delay. Typically, the

contractor’s home office overhead costs are apportioned and assigned to the contractor’s

projects. Said another way, each project has to absorb its fair share of the contractor’s

home office overhead costs (Nagata, 2013).

22

As Nagata, (2013) differentiated the terms home office overhead and extended field

overhead are often used interchangeably, they are not the same. When a project

experiences a critical and compensable delay, the project does not incur additional home

office overhead costs, as it would additional field office overhead costs.

C. Inefficiency Caused by Delay

The best way to define inefficiency is to start with a definition of efficiency. Efficiency is

a measure of units of work performed per unit of resources consumed to perform that

work. Inefficiency (also referred to as loss of efficiency or lost productivity) is a relative

measurement. An operation is inefficient when it consumes more units of resources to

perform a unit of work than should have been consumed or than were consumed by the

same type of activity performed at another time ( Theodore, 2009).

2.2.8. Assessment of Liquidated Damage

Assessment of liquidated damages is when Work has not been completed by the specified

Completion Date, the Engineer will charge liquidated damages, at the rate stated in the

Contract, for every calendar day that the Work remains incomplete after the specified

Completion Date, except (Eggleston, 2009):

On days where the Contract special provisions require the Contractor to cease construction

operations at 4:00 p.m. or earlier, only ½ day will be charged.

If the Contractor elects not to work on any one of the following days: Saturday, Sunday

and statutory holiday.

Liquidated Damages will be assessed on Saturday, Sunday or statutory holiday if the

Contractor chooses to work on that day.

2.2.9. Difference between Liquidated Damages and Penalty

The law of penalties arises where a contract stipulates that on breach the contract breaker

must pay an agreed sum which exceeds or is out of all proportion to the likely actual loss

caused by the breach. A penalty clause is a clause which provides for payment of a sum of

money by one party to another in the event of a breach of contract, the sum being designed

to secure the performance of the contract rather than to compensate the payee for loss

occasioned by the breach ( Richard, 2010).

23

Whereas, a LD provision has to be a genuine pre-estimate of loss and damage arising from

delay in the completion of the contract and assessed at the time of entry into the contract.

If the amount is not a genuine pre-estimate of the damage likely to be caused by the

breach, then it is regarded as a penalty and is not recoverable ( Richard, 2010).

LD's is a sum agreed by the Employer and the Contractor in advance as the amount to be

paid by the Contractor as damages if the Contractor breaches the contract by failing to

complete the work in time. A provision for LD's is enforceable if the amount fixed is a

genuine pre-estimate, judged at the time the contract is entered into, of the loss likely to

arise from the anticipated breach. The Employer does not need to prove actual damages

but LDs are not enforceable if imposed as a penalty (Chan, 2003).

2.2.10. Determination of Liquidated Damages Amount

A study by Richard, (2010) recommended four generic principals in measuring liquidated

damages. Firstly, the losses claimed by the client must be at a reasonable accuracy.

Secondly, the contractor's estimate was realistic. Thirdly, the contractors' actual cost was

reasonable. Fourthly, the contractor was not responsible for the increased expense.

According to Chan, (2003) pointed out if it is possible to carry out a cost-benefit analysis,

LD's shall be calculated using the daily rate of economic benefit likely to be generated by

the project after completion and those additional costs due to the delay in completion of

the Works if any. Where such analysis is not possible, as is usually the case in public

sector construction contracts, an amount being a genuine pre-estimate of the likely loss to

the Employer may be stipulated as the LD.

Chan further discussed the concept of calculating liquidated damage as, in estimating the

likely loss to the Employer, there is a widely accepted method which includes the

following components:

Loss of revenue or interest on the capital invested in the project;

Supervisory costs during the delay period;

The additional sum payable to the Contractor in respect of fluctuations in the cost of

labor and materials; and

Any special damages were specific to a particular project.

24

A. Cost Elements for Liquidated Damage

The cost elements in liquidated damages can also inform contractors whether the

liquidated damages are an extravagant amount causing the provision of liquidated

damages to be void (Eggleston, 2009). The cost elements that will be affected when there

is a delay in a construction project. These cost elements are further categorized into four

themes which are capital expenditure, loss of profit, human resource, and overhead.

Figure 2-2: Cost Elements for Liquidated Damage

(Source: (Eggleston, 2009))

In addition to the above an Owner should consider the following items when preparing an

estimate of liquidated damages ( Theodore, 2009): cost for project inspection, costs for

continued design services, costs for the Owner’s staff, costs for maintaining current

facilities, costs for additional rentals, costs for additional storage, lost revenues, costs to

the public for not having the facility, additional moving expense, escalation costs and

financing cost.

• Alternative Facilities

• Statutory

• Miscelleneous

• Additional follow on cost, follow on work

• Preparation of claims

•Professional fee

•Administrative

•Supervision

•Loss of use

•Production/productivity

•Third party

•Business Disruption

•Social cost

•Financing Interest

•Tax

•Investment incentive

•Transaction cost

Capital Expenditure

Loss of Profit

OverheadHuman

Resource

25

2.2.11. Provisions of Conditions of Contract

2.2.11.1. PPA, 2006 Conditions of Contract

Clause, 49 Liquidated Damages

o Sub-clause 49.1 stated that the Contractor shall pay liquidated damages to the

Employer at the rate per day stated in the Special Conditions of Contract for each

day that the Completion Date is later than the Intended Completion Date…… the

Employer may deduct liquidated damages from payments due to the Contractor.

o Sub-clause 49.2 mentioned that, if the Intended Completion Date is extended after

liquidated damages have been paid, the Engineer shall correct any overpayment of

liquidated damages by the Contractor by adjusting the next payment certificate.

2.2.11.2. FPPA, 2011 Conditions of Contract

Under Clause, 27 Liquidated Damages

Sub-clause 27.1 stated, except as provided under GCC Clause 18 (Events of Force

Majeure), if the Contractor fails to carry out any or all of the Works within the period

specified in the Contract, the Public Body may deduct from the Contract Price, as

liquidated damages the following:

A. A penalty of 0.1% or 1/1000 of the value of undelivered Service for each day of delay

until actual delivery or performance,

B. The cumulative penalty to be paid by the Contractor shall not exceed 10% of the

contract price.

Under Clause, 78 Delays in Implementation of Tasks

o Sub-clause, 78.1 mentioned if the Contractor fails to complete the works the

Public Body shall, be entitled to liquidated damages for every day or part thereof

which extended Intended Completion Date under GCC Clause 72 (Period of

Execution of Works) and the actual date of completion, at the rate and up to the

maximum amount specified in the GCC Clause 27 (liquidated damage). If the

works have been the subject of partial acceptance in accordance with GCC Clause

86 (partial acceptance), the liquidated damages specified in the GCC Clause 27

(liquidated damage) may be reduced in the proportion.

26

2.3. Concepts of Prolongation Cost Claim

2.3.1. Introduction

According to Hasweh, (2016) discussed construction contracts provide an unlimited basis

for claims, which the contractor can claim for different causes of loss. In practice,

Prolongation Claim is the claim associated with the contractor entitlement for extension of

time (EoT). However, the contractor’s entitlement for EoT will not by default entitle him

to prolongation cost.

As Raiha, (2015) discussed the concept of prolongation cost claim as, a contractor’s

entitlement to payment for works including variations and may also entitle to claim for

additional time and money. There is no legal significance of the term prolongation claim.

It is not a type of claim described by the law and is often called a delay claim. Many times

it is also known as disruption claim.

The meaning of a claim for prolongation is the recovery of the actual loss that the

contractor incurs as a result of the employer’s delay event which causes a delay in the

project completion date. Certainly, the contractor has to prove EoT entitlement prior the

submission of the prolongation claim since the pieces of evidence that entitles the

contractor for EoT are almost similar to the evidence required to claim for prolongation

cost but however, the quantification of any losses are conducted as separate exercise

(David, 2005).

It is common practice for decisions and awards on extensions of time to be made and

issued before considering prolongation claims. Once an extension of time has been

awarded, the intention of most construction contracts is for the contractor to be reimbursed

for the additional costs which have resulted from the employer-responsible delays

(Gibson, 2008).

In addition, David, (2005) further discussed contract claims as they must be founded on

facts and these facts must be substantiated by the contractor. Merely because a contractor

is losing money on a particular contract does not mean that he is entitled to look to the

employer for reimbursement. He must be able to establish that the loss results directly

from some act or default of the employer or those for whom he is responsible in law, or

else is referable to some express term of the contract entitling him to reimbursement.

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2.3.2. Time-Related Cost (Prolongation Cost)

Extensions of time carry with them additional costs to the contractor associated with the

increase in the length of the contract period. The extra costs could arise from maintaining

the contractor’s site facilities, providing facilities to the Engineer, extended use of

equipment which might be required for another project, off-site and head office costs,

finance and insurance costs and other potential related costs. These all are together named

prolongation costs (Samuel B. , 2014).

According to Gibson (2008), in order to justify entitlement to damages for breach of

contract, the injured party will have to prove that:

The breach actually causes loss;

The particular loss is recognized as giving entitlement to compensation;

The loss is not too remote;

The quantification of compensatory damages is fair and reasonable under the

circumstances.

The burden of proving that the breach has actually caused loss rests with the claimant, and

he will need to produce contemporary records in support of the claim. The quantification

of damages must be based upon factual records and not upon theoretical calculations.

2.3.3. Common Heads of Loss

According to David ,(2005) the basic principle to be borne in mind is that, subject to the

restrictions of directness and foreseeability, the contractor should be put into the financial

position which he would have been in had the delay or disruption not occurred. If this

general principle is borne in mind, there should be no difficulty in judging or putting

forward other heads of loss where the particular circumstances permit. The contractor

should recover his actual costs if he has the records to substantiate them in preference to

his tender costs, even though his tender costs are part of his tendered and accepted price.

28

The following are common heads of loss as stated in the work of (David, 2005):

A. On-Site Establishment Costs

These are often called site overheads or commonly simply ‘preliminaries’ because the

prices are normally found in the preliminaries section of the bills of quantities. The bills of

quantities prices are not normally to be used to calculate the loss and/or expense. Actual

costs should be used. On-site establishment costs are perhaps the easiest head of claim to

establish because the data should be readily available once the period of delay has been

settled (David, 2005).

B. Head Office Overheads

According to David, (2005) a contractor’s overheads are commonly taken to be recovered

out of the income from his business as a whole and ordinarily where completion of one

contract is delayed the contractor claims to have suffered a loss arising from the

diminution of his income from the job and hence the turnover of his business.

Even if he hasn’t so recovered, the amount is ‘reimbursable’ under the valuation of

variation clause and, therefore, can’t be recovered under the loss and/or expense clause

which covers only loss and/or expense for which he wouldn’t be reimbursed by a payment

under any other provision (David, 2005).

2.3.4. Common Heads of Prolongation Claim

According to Allen, (2012) identified that various heads of claim which may become

reimbursable: (a) Extended and/or increased preliminaries; (b) Reduced labor outputs; (c)

Extra Waste or Abortive Purchase of Materials; (d) Inflation; (e) Increased Head Office

Overheads; (f) Loss of Profit and, (g) Finance Charges. He stated that the following items

which are frequently claimed by contractors are generally not admissible: (h) Cost of

accelerating the works unless specifically required by the employer and (i) Cost of

Preparing a Claim.

The EoT makes it more likely to claim for additional payment for the loss and expenses

occurred to the contractor for the following head of claims (Hasweh, 2016): interest and

financing charges, overheads, loss of profit, cost of claim preparation and disruption claim

(for critical delays).

29

A. Interest and Financing Charges

According to Gibson, (2008) a contractor’s prolongation, or loss and expense, claim will

invariably include a sum in respect of finance charges, the argument is that they have been

‘underpaid’ for considerable periods of time, which has necessitated borrowing to make

up the shortfall or if money has been taken off the deposit, there has been a subsequent

loss of interest. It is clear from established case law that contractors are entitled to finance

charges as part of their prolongation, or loss and expense, claims. However, the contractor

will still need to show that the loss was actually suffered.

Interest claim

The claim for interest is the most common head of claim for prolongation cost in

construction contracts. The interest as a remedy to recover the damages for the delay can

be divided based on its cause and effect into two main categories Hasweh, (2016).

Financing Charges

The contractor may incur additional expenditure to maintain the contractor’s obligations in

progress. Indeed, additional funds are required to fill the obligatory gap Hasweh, (2016).

Therefore, the cost of performance will increase. In practice, the contractors are more

reliant on the outsourced funds for their business development. Thus, the contractor may

incur the loss of interest for the borrowed money. The financing charges claim can be

ahead of prolongation claim at the contractor’s statement of claim.

B. Overheads

According to Hasweh, (2016) stated as the Overheads or in other terms has been referred

to as Management Charges are commonly claimed by the contractor as head of

prolongation cost claim. It is more suitable and also preferable to contractually pre-agree

the mechanism of quantifying the overheads under the contract terms.

Loss of Opportunity

The loss of opportunity are the loss of making use of the overheads at another secured

project due to the contractor’s delay in the current project, subsequently, the loss of

contribution of head-office overheads has to be recovered by the current delayed project.

30

The contractor’s ability to prove the loss of opportunity differs based on the company size.

Small construction companies are more likely to be able to prove that the delay in a

specific project has played a significant role not to be engaged in another secured project

especially when the company’s strategy is to carry out one project at the time (Hasweh,

2016).

Extra Cost Claim (Wasted Management Time and On-site Overheads)

As Hasweh, (2016) mentioned the principle of extra cost has turned the head-office

overheads and on-site claims to different aspect, the contractor herein don’t claim for

head-office contribution for loss of opportunity at another secured project but however has

focused on claiming the actual incurred loss for the additional time spent.

C. Loss of Profit

The loss of opportunity can be claimed for an over-heads contribution at another secured

project despite the profitability factor of that project. Meanwhile, the claim for loss of

profit has to be reasonably related to the profitability of that opportunity. In other words,

the contractor has to prove not only the employer’s breach of contract but also has to

prove that the employer’s breach has prevented him from earning income or likely to earn

income from the opportunity which the contractor would earn if the breach didn’t happen

(Hasweh, 2016).

D. Cost of Claim Preparation

According to Hasweh, (2016) the cost of producing a claim is not recoverable especially

when the contractor is merely acting in accordance with the contract requirements.

Therefore, the contractor requires an express contract provision to be entitled to recover

the incurred cost. However, the requests for additional substantiation by the employer

beyond the contract requirements and common practice shall be the basis for the

contractor’s entitlement to recover the cost of further preparation, either for managerial

time or for an external consultant. Nevertheless, the contractor will not recover the

additional cost incurred due to the contractor’s resubmission of a poorly presented claim.

31

E. Disruption Claim

As Hasweh, (2016) elaborated as the disruption claim is basically an individual claim but

however can be also claimed within the prolongation cost. Indeed, the disruption claim

entitlement reasons are merely the same as for prolongation claim.

2.3.5. Estimating Prolongation Cost

Generally, the claim for additional payment in the case of prolongation may be

categorized as follows (Hewitt, 2016):

Site‐establishment costs including site staff, site establishment, transport, plant,

equipment and the necessary running and maintenance of such items.

Contractual costs such as insurances and performance guarantees

Head‐office overheads and profit

Finance costs

As Theodore, (2009) concluded that the calculation of delay damages is as much an art as

a science. So, the appropriate damage calculations are project-specific and situation-

specific.

The starting point for the analysis of a prolongation claim should be ‘with respect to what

period is the contractor entitled to further payment?’ What is equally important not only

concerns how many weeks the contractor is entitled to be paid for but which weeks. This

is because the amount of his entitlement will depend on his actual costs, particularly his

time-related preliminary costs which will vary throughout the project (Gibson, 2008).

The fact that damages can’t be assessed with certainty does not relieve the wrongdoer of

paying damages. Where the precise evidence is obtainable the certifier, contract

administrator, arbitrator, adjudicator or court naturally expects to have it; but where it is

not, the certifier or court must do the best it can (Gibson, 2008).

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2.3.6. Provisions for Prolongation Cost Claims under PPA and FIDIC Conditions of

Contract

Most of the standard form of construction contracts currently in use contains detailed

provisions under which the contractor can claim against the employer for any losses

suffered if the work is disrupted due to certain specified causes. These provisions often

bear some resemblance to those under which an extension of time may be claimed.

2.3.6.1. Prolongation Cost Claim Provisions under PPA, 2006 Form of Contract

Table 2-4: Compensation Clauses in PPA, 2006 Conditions of Contract

Clause Title Contractor’s Entitlement

40 Payment for variations

40.4 If the Engineer decides that the urgency of varying the work would prevent a

quotation being given and considered without delaying the work, no quotation

shall be given and the Variation shall be treated as a Compensation Event.

44 Compensation Events The contractor is Entitled to both Time and Money

44.1 The following shall be Compensation Events:

a) The Employer does not give access to a part of the Site by the Site

Possession Date stated in the Contractor’s approved work program.

The Engineer instructs the Contractor to uncover or to carry out additional

tests upon work, which is then found to have no Defects.

b) The Engineer unreasonably does not approve a subcontract to be let.

c) Ground conditions are substantially more adverse than could reasonably

have been assumed before issuance of the Letter of Acceptance from the

information issued to bidders (including the Site Investigation Reports

referred to in GCC 14.1).

d) The Engineer gives instruction for dealing with an unforeseen condition,

caused by the Employer, or additional work required for safety or other

reasons.

e) The Engineer unreasonably delays issuing a Certificate of Completion.

f) Other Compensation Events described in the Special Conditions of

33

Contract or determined by the Engineer shall apply.

44.2 “If a Compensation Event would cause additional cost or would prevent the work

being completed before the Intended Completion Date, the Contract Price shall be

increased and/or the Intended Completion Date shall be extended. The Engineer

shall decide whether and by how much the Contract Price shall be increased and

whether and by how much the Intended Completion Date shall be extended.”

2.3.6.2. Prolongation Cost Claim Provisions under FPPA, 2011Form of Contract

Under Clause 20, Suspension

Sub-clause, 20.4 stated the Engineer, after consultation with the Public Body and the

Contractor shall determine such extra payment and/or extension of the period of

performance to be made to the Contractor in respect of such claim as shall, in the opinion

of the Engineer, be fair and reasonable.

Under Clause 44, Exceptional Risks

Sub-clause, 44.1 mentioned if during the execution of the works the Contractor encounters

…… if the Contractor is of the opinion that additional costs will be incurred and/or an

extension of the period of implementation of the tasks will be necessary.

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2.4. Concepts of Extension of Time

Extension of Time is one of the most important aspects in the management of

Construction Contracts. While Contractors try to obtain an Extension of Time to get relief

from paying Liquidated Damages, Clients (Employers) may prefer the completion within

the original time frame. Due to this conflicting nature, the role of the Engineer as an

independent assessor of Extension of Time becomes highly important. Such assessment is

a difficult task as a multitude of causes can lead to delay in completion but the actual

entitlement of Extension of Time is confined to only a few causes (Eggleston, 2009).

2.4.1. Purpose of Extension of Time

According to Eggleston, (2009) confirmed that, the purpose of an Extension of Time

clause in a construction contract is to deal with excusable and compensable delays

suffered by the contractor. The clause is designed to discharge the Contractor from his

liability for Liquidated Damages during that extended period and to compensate him for

costs associated with the delay and for which he would not have been in a position to

allow for at the onset.

The benefit to the contractor of an EoT is to relieve the contractor of liability for damages

for delay (usually liquidated damages) for any period prior to the extended contract

completion date and allows for reprogramming the works to completion the benefit of an

EoT for the employer is that it establishes a new contract completion date, prevents time

for completion of the works becoming ‘at large’ and allows for coordination / planning of

its own activities. (Gibson, 2008)

As Juan Rodriguez, (2017) discussed to obtain an Extension of Time; the Contractor must

first establish that a delay was in fact caused that inhibited the completion date by a

relevant event. The difference between the period in which he would have completed

earlier and the eventual completion date is his claimed extension and if proven; it should

reduce his liquidated damages to the same extent.

35

Extension of Time clauses, therefore, has various purposes (Eggleston, 2009):

To retain a defined time for completion;

To preserve the employer’s right to liquidated damages against acts of prevention;

To give the contractor relief from his strict duty to complete on time in respect of

delays caused by designated neutral events.

2.4.3. Evaluating Extension of Time Claims

To avoid unnecessary disputes arising, from Extension of Time claims it is important to

understand common issues like contractual procedures of preparing, submitting and

assessing Extension of Time claims; the treatment of float and of concurrent delays; the

importance of construction programs and the mechanism of updating programs; and

keeping of accurate and contemporaneous records are very important issues (Juan

Rodriguez, 2017).

2.4.4. Information that needs to be considered in Evaluating Extension of Time

Application

Upon receipt of the contractor’s notice, the architect is to consider making an EoT

independently in the light of his knowledge of the progress of the works and of other

matters affecting or likely to affect its progress. Amongst the sources of information

which he may utilize to monitor and assess the delay are: the contractor’s notice of delay

and particulars (application letter), the works program as-built works, program records of

when operations and activities actually began and finished, site progress meeting minutes

and records, contractor’s day-work sheet site staff reports and diaries contractor’s progress

reports contractor’s method statements and working cycles (Gibson, 2008).

2.4.4.1. Construction and Progress Records

There are a multitude of different types of records kept on construction projects, which are

documented with varying degrees of rigor depending on who is responsible for their

completion, as well as being dependent on project management effectiveness from one

project to the next (Eggleston, 2009).

36

Progress records are commonly kept by the contractor and the architect independently. A

master program together with subsequent updates, a comparison of master program with

actual records, Site diaries in a standard format, a drawing register kept up to date as new

drawings are issued and incorporating issue dates, a weekly log of activities commenced

and completed, a weekly log of those areas which were considered problematic and

Progress meetings (Juan Rodriguez, 2017).

2.4.5. Common Mistakes by the Contractor in the Application of EoT

According to Paul, (2013) most contracts do not require the contractor to do more than

give notice of delays, maintain records and provide particulars. Provided that the

contractor has provided details of all events, dates, what work was affected and the like, it

appears that the contractual provisions have been satisfied and the obligation is then on the

architect to decide that extension is reasonable on the basis of the particulars provided

and/ or on the basis of further information obtained from other sources.

Major mistakes which can lead to obstacles to prompt settlement of claims for EoT

applications are: Late, insufficient or total lack of notice of delay on the part of the

contractor, Failure to recognize delay at the appropriate time or failure to describe the

cause of delay, Poor presentation of the application to show how the progress of the work

has been delayed (Gibson, 2008).

2.4.6. Extension of Time Submissions

According to Gibson, (2008) the major obstacles to prompt settlement of submissions for

Extensions of Time include the following:

The erroneous assumption that an Extension of Time automatically grants entitlement

to monetary compensation.

Late, insufficient or total lack of notice of delay or likely delay on the part of the

contractor.

Failure to maintain contemporary records.

Failure to regularly update the program so that the effects of delay can be monitored.

Poor presentation of the claim to show how the progress of the work has been or is

likely to be, impacted.

37

In addition to the above Gibson, (2008) further recommended that for an EoT submission,

the contractor should state:

The material circumstances giving rise to an Extension of Time;

The event or cause of entitlement;

Whether the cause is a relevant event under the contract;

The delay, or likely delay, to the progress of the works;

The likely effect of the event on the completion date of the contract and any

contractual sectional completion dates.

In any claim for an Extension of Time, and whether or not there is a requirement to give

details and particulars, it is good practice to include the following (Thomas, 2008):

A description of the cause of delay and the contractual provision which is being relied

upon for the extension;

The date when the delay commenced and the period of delay (giving details of

intermittent effects, if appropriate);

The date of notice of delay, specifying the reference of the relevant document;

A summary of records and particulars relied upon (with copies included in an

appendix);

A narrative of the events and effects on progress;

A diagrammatic illustration showing the status of the program, progress, and current

completion date prior to the commencement of the delay;

A diagrammatic illustration showing the effects of the delay on progress and the

completion date (including subsequent delays which may have reduced the float in the

program);

A statement requesting an Extension of Time for the delay to completion for the

period shown on the submitted illustrations.

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2.4.7. Issues in FIDIC MDB, 2010 Perspective on Prolongation of Cost and EoT

Table 2-5: Issues in FIDIC MDB, 2010 perspective on prolongation Cost Claim and EoT

Clauses Issues Type of Compensation

Clause 1.9 Delayed Drawings or Instructions Employer shall extend Time and pay

Cost

Clause 2.1 Right of Access to the Site >> Both Time & Cost

Clause 4.7 Setting Out >> Both Time & Cost

Clause 4.12 Unforeseeable Physical Conditions >> Both Time & Cost

Clause 7.4 Testing >> Both Time & Cost

Clause 7.5 Rejection of tests Contractor shall pay the Cost incurred

Clause 7.5 Remedial Work Contractor shall pay the Cost incurred

Clause 8.6 Rate of progress Contractor shall pay the Cost incurred

Clause 8.7 Delay Damages Contractor shall pay the Cost incurred

Clause 8.9 Consequences of Suspension Employer shall Extend Time and pay

Cost

Clause 8.10 Payment for Plant and Materials in

Event of suspension

Employer shall pay the Cost

Clause 13.7 Adjustments for Changes in

Legislation

Employer shall Extend Time and pay

Cost

Clause 14.8 Delayed Payment Employer shall pay the financing

charges

Clause 16.1 Contractor’s Entitlement to Suspend

Work


Cost

Clause 19.4 Consequences of Force Majeure


Cost depending on the case

39

2.4.8. PPA 2006 Conditions of Contract on Extension of Time

A. Extension of the Intended Completion Date

Under Clause 28 stated about an extension of the intended completion date: the

following two sub-clauses discussed the engineers' right to extend the intended

completion date.

o Sub-clause 28.1 mentioned the Engineer’s responsibility to extend the Intended

Completion Date if a Compensation Event occurs or a Variation is issued which

makes it impossible for Completion to be achieved by the Intended Completion

Date without the Contractor taking steps to accelerate the remaining work, which

would cause the Contractor to incur an additional cost.

o Sub-clause 28.2, on the other hand, stated that the Engineer’s responsibility to

decide whether and by how much to extend the Intended Completion Date within

21 days of the Contractor asking the Engineer for a decision upon the effect of a

Compensation Event or Variation and submitting full supporting information. If

the Contractor has failed to give early warning of a delay or has failed to cooperate

in dealing with a delay, the delay by this failure shall not be considered in

assessing the new Intended Completion Date.

Sub-clause 44.2 clearly stipulated concerning effects of compensation events (listed

out under sub-clause 44.1), if a Compensation Event would cause additional cost or

would prevent the work being completed before the Intended Completion Date, the

Contract Price shall be increased and/or the Intended Completion Date will be

extended.

In addition sub-clause 44.3 pointed out that, as soon as information demonstrating the

effect of each Compensation Event upon the Contractor’s forecast cost has been

provided by the Contractor, it shall be assessed by the Engineer, and the Contract Price

shall be adjusted accordingly.

40

2.4.9. FPPA 2011 Perspective on EoT

Under clause 44, Exceptional Risks

Under sub-clause, 44.1 mentioned if during the execution of the works the Contractor

encounters artificial obstructions or physical conditions which could not reasonably have

been foreseen by an experienced Contractor, and if the Contractor is of the opinion that

additional costs will be incurred and/or an extension of the period of implementation of

the tasks will be necessary as a result of this, he shall give notice to the Engineer in

accordance with GCC Clauses 73 (Extension of Intended Completion Date). The

Contractor shall specify in such notice the artificial obstructions and/or physical

conditions, giving details of the anticipated effects thereof, the measures he is taking or

intends to take and the extent of the anticipated delay in or interference with the execution

of the works.

Under Clause, 73. Extension of Intended Completion Date

Sub-clause, 73.1 stated the Contractor may request an extension of the Intended

Completion Date if he is or will be delayed in completing the contract by any of the

following causes:

a) Exceptional weather conditions in the Federal Democratic Republic of Ethiopia;

b) Artificial obstructions or physical conditions which could not reasonably have been

foreseen by an experienced Contractor;

c) Compensation Event occurs or change order for modification is issued which makes it

impossible for completion to be achieved by the Intended Completion Date;

d) Administrative orders affecting the date of completion other than those arising from

the Contractor's default;

e) Failure of the Public Body to fulfill his obligations under the Contract;

f) Any suspension of the works which is not due to the Contractor's default;

g) Force majeure;

h) Any other causes referred to in this GCC which are not due to the Contractor's default.

41

Under Clause, 74 Compensation Events for Allowing Time Extension

Under sub-clause, 74.1 stated the following shall be Compensation Events allowing for

time extension:

a) The Public Body does not give access to a part of the Site by the Site Possession Date

stated in the Contractor’s approved work program;

b) The Public Body modifies the Schedule of other Contractors in a way that affects the

work of the Contractor under the Contract;

c) The Engineer orders a delay or does not issue Drawings, Specifications, or instructions

required for the execution of the Works on time;

d) The Engineer instructs the Contractor to uncover or to carry out additional tests upon

work, which is then found to have no Defects;

e) The Engineer unreasonably does not approve a subcontract to be let;

f) The Engineer gives instruction for dealing with an unforeseen condition, caused by the

Public Body, or additional work required for safety or other reasons.

g) Other Contractors, public authorities, utilities, or the Public Body do not work within

the dates and other constraints stated in the Contract, and they cause delay;

h) The advance payment is delayed;

i) The Engineer unreasonably delays issuing Interim Payment Certificates;

j) Other Compensation Events described in the SCC or determined by the Public Body

and force majeure.

2.5 GAP Identification

The contractor provides unrealistic and unfair time extension request to the consultant for

approval. The consultant and the employer accepted his request due to different reasons

including fearing the prolonged justice process in the country. This makes our contractors

reluctant on keeping project completion date.

Even if the liquidated damage clause is included in contract documents of building

construction projects its implementation practice is vary for different clients during

projects are became delay so in this study the practice and implementation of Prolongation

Cost Claim, Liquidated Damage and Extension of Time were conducted by taking Bahir

Dar University Building Projects as a case study.

42

CHAPTER THREE

METHODOLOGY

3.1. Study Design

The Methodology considered and adopted for this research work focused on literature

review and, questionnaire survey designed and employed to assess the practice and

implementation of liquidated damage, prolongation cost claims and extension of time in

Bahir Dar University Building Construction Projects. It also uses a mixed research method

both quantitative by questionnaire and qualitative methods by using documentation review

taking case-studies in the data collection process. The quantifiable responses were

analyzed through a quantitative method as the name implies. The qualitative data gives

more emphasis to the non-quantifiable responses and it is chosen due to its flexible nature.

In recent times, the responses gathered through questionnaires are becoming less reliable

as the respondents didn’t give due attention to the outcomes, it is essential to strengthening

through documentation reviews (Nagata, 2013). Therefore, the qualitative method used to

support the quantitative data that was collected in this research. Finally, based on the

obtained data and results of the analysis, conclusions and recommendations will be

provided.

According to Kothari, (2004) discussed a research as a process of collecting, analyzing

and interpreting information to provide solutions to questions. For the purpose of this

thesis, a research is defined as a practical investigation or exploration to find out new facts

or assemble old facts by scientific ways for the purpose of developing existing theory or

its application for real problems.

43

To accomplish the objectives of this study, the researcher used the following

methodologies.

Literature review of different books, master’s thesis, web sites of similar cases and

sample project reports.

Data sources: Study population (Employees of Contractors and Consultants working in

Bahir Dar University Building projects).

Research instruments and data collection: by collecting information and data through

questionnaires and documentation review by taking case studies.

Data analysis: quantitative (questionnaire) and qualitative analysis (documentation

reviews in the form of case-studies).

The outcomes of the questionnaire survey were supported by conducting a case study on

selected Bahir Dar University Building Construction Projects. Documentation reviews

were mostly from on-going projects, in which contract documents, project reports,

correspondence letters, and payment certificates were investigated thoroughly which will

be very important in identifying the recurrent problems.

Overall, the following procedures were conducted and followed throughout the thesis

writing: the thesis proposal was developed, after background study second variables were

identified through the literature review third the questionnaire was developed and

distributed then questionnaire responses were collected from respondents lastly the

collected data were analyzed, discussed and findings were taken out.

3.2. Study Area

The study area of this research is Bahir Dar. The research was assessed building

construction projects of Bahir Dar University in relation to the effect of delays Liquidated

Damage, Prolongation Cost Claims and Extension of Time.

3.3. Sample and Sampling Techniques

Sampling design is a definite plan for obtaining a sample from a given population. It refers

to the technique or the procedure the researcher would adopt to select units for the sample.

It will also indicate the number of units to be included in the sample also known as

Sample size. The first step in developing any sampling design is to clearly define the

aggregate of sampling units, namely the population.

44

In this study, purposive sampling technique was used to select the representative sample

population. Purposive sampling of participants is intentionally selected based on specific

purposes associated with answering research questions (Naoum, 1998) . Purposive

sampling is labeled as "theoretical sampling". It is a useful sampling method consisting of

getting information from a sample of the population that one thinks to know more about

the subject matter.

3.4. Target Populations and Sample Size Determinations

The following general rules are helpful in determining sample size: The larger the

population size, the smaller the percentage of the population required to get a

representative sample.

For smaller populations, if the total population (N) is less or equal to 100, survey the

entire population.

If the total population (N) is around 500, 50% should be sampled.

If the total population (N) is around 1,500, 20% should be sampled.

If the total population (N) beyond a certain point – at about 5000 units or more, a

sample of 400 people is adequate (Gay L. & Airasian P., 2003).

The actual sample size of the research was determined with regard to the number of

projects covered in Bahir Dar University building construction projects. The reason

behind the sample size with regard to the number of projects was to increase the number

of respondents for the purpose of the validity of the research. Therefore, the following

table 3-1 shows the target population of the research and number of projects covered in

Bahir Dar University building construction projects.

45

Table 3-1: Sample Size & Target Populations of the Study On-going BDU Building

Projects

No Project Name Project

Location,

Contractor Consultant No. of

Employees

1 BIT Students

dormitory

Poly NASEW

construction Plc

BD Consult 3

2 BIT Class Room Poly FE construction Plc BD Consult 4

3 EITEX LOTVII Textile FE construction Plc CDSCO 6

4 Workshop &

Laboratory

Poly Flintstone

Engineering

BD Consult 4

5 PHD Student

dormitory

Poly Flintstone

Engineering

CDSCO 3

6 EITEX LOT III Textile GAD Construction CDSCO 5

7 Lot-VI Assembly

hall, administration

Textile Berhan Tobiaw CDSCO 7

8 Medical Faculty

lot 4

Sebatamit Tekeleberhan

Ambaye

BD Consult 5

9 Medical Faculty

lot 3 library cafeter

Sebatamit Yencomad

construction Plc

BD Consult 2

10 Medical Faculty

lot 3

Sebatamit SATCON BD Consult 3

11

Bahir Dar University Coordinating Office Engineer’s 5

12 Total Population (Engineers) working in BDU Building Projects 54

(Source: Bahir Dar University Coordinating Office of Physical Projects)

Since the total population (Engineers) working in Bahir Dar University projects are 54

which is less than 100 the researcher took the entire population for this study but 4 of the

Engineers were not avail in their office during questionnaire distribution due to different

reasons and 5 Engineers were not returned the questionnaire due to business in their job so

the actual sample size of this study was 45 (which were filled and returned). This means

that the researcher employed comprehensive sampling technique.

46

3.5. Research Design Flow Chart

Figure 3-1: Research Design and Flow Chart

Title Selection and Problem Identification Research Objective Literature Review Development of Methodology

1. Research design

2. Questionnaire Design

Data and Information Collection

Case-Study

Questionnaire

Analysis and Discussion

Conclusion and Recommendation

47

3.6. Data Collection Method

This study was adopted both quantitative and qualitative research methodology. A

literature review was done to build a conceptual framework in providing a basis for

project delays specifically focused on the consequences of project delay which are

Liquidated Damage, Prolongation Cost Claims and Extension of Time.

The required data was collected by using a well prepared and pretested questionnaire. A

questionnaire was developed in order to assess the perceptions of different parties

involved in the Building Construction Projects of Bahir Dar University, for the assessment

of implementation and practice Liquidated Damage, Prolongation Cost Claims and

Extension of Time. The researcher preferred to collect the required information by using

questionnaires and documentation review since the questionnaire is used in both

qualitative and qualitative research.

The questionnaire was designed from the literature and contained close-ended questions.

These types of questions have a number of choices of possible answers and the

respondents selected whatever they feel will most appropriate. The reason for selecting a

questionnaire method for this research was because it has the merit of giving adequate

time for informants to respond, not easily approached respondents can be reached

conveniently, large sample members can be addressed, and economically cheap. Similarly,

the closed-ended questions were also selected because they are easier to assess and answer

considering how busy the respondents were. Meanwhile, contractual matters and

documentation reviews were reviewed by the researcher to verify participants’ responses.

The data collection approach adopted for conducting this research included both primary

and secondary sources. Questionnaire and documentation reviews provided the primary

data for this thesis while the secondary data sources include renowned Civil Engineering

journals those especially in project and Construction Management, internet sources, as

well as reviewing related archival documents (such as contract documents) on contractual

issues of various construction works. These different methods of data collection will be

used in order that the data or information obtained from one can be supplemented by the

others whereby the collected data will give multiple pieces of evidence.

48

3.6.1. Questionnaire

According to Kothari,(2004) questionnaire is the most common data gathering tool which

helps to collect a great deal of information within a limited time and helps to reach large

group of reasearch participants.

For the questionnaire survey, respondents were Employees of Employer’s organization,

Contractors and Consultants who have been involved in the Bahir Dar University Building

Construction Projects. The questionnaire which consisted of both open and close-ended

questions was distributed among these professionals.

The questionnaire had four parts. The first part of the questionnaire contained items of

respondent’s general profiles. The second part of the questionnaire consisted items to

measure for liquidated damage practices and implementations. The third part of the

questionnaire consisted items to measure for prolongation cost claims practices and

implementations. The last part of the questionnaire contained items to measure for

extension of time practices and implementations.

3.6.2. Documentation Review

Documentation review of contract documents of the building projects were used in this

research to support or supplement responses and arguments find by questionnaire

concerning the implementation of liquidated damage clause and major reasons of

justifying extension of time in Bahir Dar University building projects. Of course, as the

nature of the cases focuses on one aspect of a problem or practice, the conclusion drawn

may not be generalized, but rather related to one particular event.

3.6.2.1. Targeted Case Studies

Case studies are generalizable to the theoretical proposition and not to populations or

universes. A Case-Study doesn’t represent a 'sample', and the researchers' goal is to

expand and generalize theories (analytical generalization) and not to enumerate

frequencies (statistical generalization). Eight (8) Case-Studies have been selected for

analysis and evaluation of the Extension of Time claims and seven (7) Case-Studies have

been selected for analysis and evaluation of practice and implementation of Liquidated

Damage.

49

3.6.3. Secondary Data Sources

Archival documents, contract documents and other related documents were reviewed to

understand the consequences of project delays with special focus on Prolongation Cost

Claims, Extension of Time and Liquidated Damage on Practice and Implementation in

Public Building Construction Projects (focused on a case-study on Bahir Dar University

Building Construction Projects).

3.7. Data Analysis

The data analysis was determined to establish the relative importance of various factors,

analysis of data consisted of calculating the Relative Importance Index (RII) and Ranking

of factors in each category based on the Relative Importance Index (RII). The responses to

the questionnaires were based on the Likert Scale of ordinal measures according to the

degree of contribution to each question. The main approach used to analyze the data is by

using the Relative Importance Index (RII) technique for the ranking of factors for the

practice of Liquidated Damage, Prolongation Cost Claim and Extension of Time through

excel spreadsheet (Odeh & Battaineh, 2002).

𝑅𝐼𝐼 =∑ 𝑊

(𝐴∗𝑁) [Equation 3.1]

Where: 𝑤 = is the weight given to each factor by the respondents,

𝐴 = is the highest weight or rank and

𝑁 = is the total number of respondents that answered the question

In this research, descriptive statistical method was used for the analysis of data collected

from various sources. For summarizing of the collected data and to determine the number

of responses belonging to each category, Frequency Tables by SPSS 21 was used together

with Excel frequency analysis for a cross-check for the reliability of analysis output. In

addition, SPSS 21 was used to investigate the level of association (agreement) in response

among any pairs of respondent groups by cross-tabulation of their responses.

3.7.1. Spearman rank correlation coefficient

According to Die, (2006) spearman rank correlation coefficient was used to determine the

strength of rankings between two parties i.e. between contractor and consultant, contractor

and client, client and consultant.

50

The Spearman rank correlation coefficient is calculated using the following Equation:

(Pourrostam &Ismail, 2012).

𝑟𝑠= 1 −6∗∑𝑑

(𝑁3−𝑁) …………………………………………….………... [Equation 3.2]

Where

rs= Spearman rank correlation coefficient;

d =Difference in ranking between two parties

N = Number of variables.

The value of the Spearman rank correlation coefficient ranges from +1 (perfect

correlation), to 0 (no correlation), to −1 (perfect negative correlation).

3.8. Research Validity and Reliability

3.8.1. Research Validity

The draft questionnaires were given to experts in research to ascertain the items suitability

in obtaining information according to research objectives of the study. This process

assisted in eliminating any potential problems of the research instrument and to test the

validity and workability of the instrument. The quality of this study was improved by

discussions with peers in the form of conversations, comments from Engineers who have

lot of experiences in Construction Projects and thesis advisors comments and suggestions

were taken into consideration to improve the quality of this research study.

3.8.2. Research Reliability

A research instrument is reliable if it is consistent and stable. Reliability was analyzed

using SPSS 21 by calculating the correlation of values of items for questions of which

responses are predicted. In the context of this study, the reliability of the questionnaire

was ensured by testing the tool using the Cronbach's co-efficient alpha.

It was noted that the closer the coefficient is to 1, the more reliable the survey instrument

is. Thus, the optimal Cronbach's coefficient alpha value should be above 0.7 (Fellows &

Liu, 2007).

51

CHAPTER FOUR

RESULTS AND DISCUSSION

This chapter analyses the data gathered using a questionnaire and an analysis of

documentation reviews (case-study). It discusses the profile of participants in the study,

reliability testing, analysis of questionnaire responses and documentation reviews (case-

study analysis) and formulates conclusions and recommendations.

4.1. Reliability Testing

Reliability testing for independent variables calculates the coefficient of reliability based

on the average correlation of items within a scaled test considering the items were

standardized. Cronbach’s Alpha Coefficient used to test the reliability varies from 0 to 1;

the closer the coefficient is to 1, the more reliable the scale. Table 4-1 shows that the

reliability test result which is Cronbach’s Alpha coefficient values for different variables,

it indicates that the responses of questionnaire respondents reliable.

Table 4-1: Reliability Testing

Name of Variables Cronbach's Alpha N of Factors

Easy to Testify LD 0.75 3

Alternatives to enhance the Enforcement of LD 0.83 4

Possible Impacts of LD 0.72 4

Difficulty Level in Estimating Prolongation Cost 0.75 7

Reasons for Project Delay that Could Justify EoT 0.8 6

Common Mistakes by the Contractor 0.84 7

4.2. Spearman Rank Correlation Coefficient

Below table 4-2 indicates the spearman rank correlation coefficient by taking one factor

number 2 which showed in appendix-6 for was determined to assess the strength of

relationship between two parties of ranking. Since correlation b/n client and consultant,

client and contractor and consultant and contractor 0.8, 0.8 and 1 respectively this shows

there is strong correlation. It was calculated using equation 3.2 shown above. The value of

the Spearman rank correlation coefficient ranges from +1 (perfect correlation), to 0 (no

correlation), to −1 (perfect negative correlation).

52

These values show that there is very strong agreement or correlation between the rankings

of client and consultant as well as client and contractor. Moreover, the agreement of

rankings between and consultant and contractor is also perfect correlation.

Table 4-2: Correlation Coefficient of the Agreement between the Parties in Rankings

Respondents Client Consultant Contractor

Client 1.000

Consultant 0.8 1.000

Contractor 0.8 1 1.000

Number of Variables=4

4.3. Questionnaire Survey

The questionnaire was distributed for employees of companies with different roles such as

owner (Bahir dar University physical project office), Contractor’s and Consultant’s

working in Bahir dar University building construction projects. The questionnaires were

distributed through face-to-face mechanisms for all respondents. The questionnaire was

distributed to 50 Engineer’s and the response rate of the survey was 45 (90%).

4.3.1. Respondents General Information

4.3.1.1. The Parties Where Respondents Were Working

In this research from the total 45 respondents 6.67% (3) from clients, 24.4% (11) are from

consultants and the rest 68.9% (31) are from contractors.

53

Figure 4-1: The Parties Where Respondents Working

4.3.1.2. Gender of Respondents

Table 4-3: Gender of Respondents

The above table 4-3 showed that from the total respondents 36 (80%) are male Employees

and the rest 9 (20%) are female Employees who are working in a different position.

Gender of Respondents

Male Female

Count Row N % Count Row N %

36 80.0% 9 20.0%

54

4.3.1.3. Respondents Job Position in the Company

Figure 4-2: Respondents Job Position

From the above Figure 4-2, the respondent’s job position is Project Managers (22.22%),

Resident Engineers (22.22%), Site Engineers (20%) and the highest of all respondents are

Office Engineers (35.56%).

4.3.1.4. Professional Experiences of the Respondents

Table 4-4: Professional Experiences of Respondents

Professional Experience

Frequency Percent Valid Percent Cumulative

Percent

Valid

0-5 Years 18 40.0 40.0 40.0

5-10 years 14 31.1 31.1 71.1

10-15 Years 9 20.0 20.0 91.1

15 years and Above 4 8.9 8.9 100.0

Total 45 100.0 100.0

From the professional experience of the respondents, 40% of them have working

experiences up to 5 years, 31.1% of the respondents have experienced between 5-10 years,

20% have experienced between 10-15 years and 8.9% have experienced above 15 years.

55

4.3.1.5. Educational Qualifications of the Respondents

Figure 4-3: Educational Qualification of the Respondents

The above Figure 4-3 shows the educational qualification of the respondents of which

68.89% are Bachelor’s Degree holders, 24.44% are Master’s Degree holders and 6.67%

are Diploma holders.

4.3.2. Issues Related with Liquidated Damage

4.3.2.1. Which Test of Liquidated Damage is Easy to Satisfy

Table 4-5: Tests of Liquidated Damage Easy to Satisfy

Which Test of Liquidated Damage is Easy to Satisfy

Factors 1 2 3 4 RII Rank The parties must intend to liquidate (i.e. stipulate to the

amount) the damages in advance 11 15 11 8 0.59 3

The damages anticipated as a result of the contract breach

(such as a contractor’s delay must be uncertain in amount or

difficult to prove) 6 15 16 8 0.64 1

The amount stipulated must be reasonable, that is to say, not

greatly disproportionate to the anticipated loss or injury

(Estimates) 7 20 8 10 0.62 2

(1-Most Easy, 2-Easy, 3-Fairly Easy and 4-Not Easy)

56

From above table 4-5 the damages anticipated as a result of the contract breach (such as a

contractor’s delay must be uncertain in amount or difficult to prove is (RII=0.64) is the 1st

rank and the amount stipulated must be reasonable, that is to say, not greatly

disproportionate to the anticipated loss or injury (Estimates) has (RII=0.62) is the 2nd rank

from the perspective of tests of liquidated damage easy to satisfy.

4.3.2.2. Recommendation for Parties to a Contract in the Event of Delays as an

Alternative to enhance the Enforcement of Liquidated Damage Clause

Table 4-6: Alternatives to enhance the Enforcement of the Liquidated Damage Clause

Alternatives to enhance the Enforcement of the LD Clause

Alternatives 1 2 3 4 RII Rank Insurance against losses 10 8 13 14 0.67 2

Bonus clause for early completion 8 6 13 18 0.73 1

Suing the contractor for the damages suffered 5 16 19 5 0.63 3

Determination / Termination of contracts and retender 21 9 6 9 0.52 4

1-Least Recommended 2-Merely Recommended 3-Recommended 4–More Recommended

For alternatives to enhance the enforcement of liquidated damage clause bonus clause for

early completion has (RII=0.73) which is the 1st option, insurance against losses has

(RII=0.67) 2nd option and the 3rd alternative is suing the contractor for the damages

suffered which has (RII=0.63).

57

4.3.2.3. Possible Impacts of Liquidated Damage Clause in Building Construction

Contracts

Table 4-7: Possible Impacts of Liquidated Damage Clause in Building Construction

Contracts

Possible Impacts of the Liquidated Damage Clause in Building Construction Contracts

Possible Impacts 1 2 3 4 5 RII Rank Promote timely project completion 6 6 3 13 17 0.73 2

Reduce rampant unapproved delays of projects 0 7 14 17 7 0.71 3

Improve project performance with respect to time 3 5 7 15 15 0.75 1

Lead to intimidated and apprehension of building

contractors prior to entering into contract agreements 2 6 16 16 5 0.67 4

1-Not at all 2-Slightly 3-Moderately 4-Very 5-Extremely

From the above table 4-7 regarding the possible impact of liquidated damage clause in

building construction contracts improve project performance with respect to time has 1st

rank (RII=0.75), promote timely project completion has 2nd rank (RII=0.73) and reduces

rampant unapproved delays of projects has 3rd rank (RII=0.71).

4.3.2.4. The practice of Contract Management Principles in Projects Concerning to

Liquidated Damage

Table 4-8: Practice of Contract Management Principles Concerning the Liquidated

Damage

The Practice of Contract Management Principles Concerning to Liquidated Damage

Practice Yes % Yes No % No

Inclusion of Liquidated Damage clause in building construction contracts 40 88.9 5 11.1

Deduction of Liquidated damage when there is a delay by the contractor 30 66.7 15 33.3

Granting of EOT when there is a delay not due to the client’s organization 31 68.9 14 31.1

Repayment of Liquidated Damage, when EOT is granted subsequently 27 60 18 40

58

Concerning the practice of contract management principles to Liquidated Damage, 88.9 %

of the respondents stated there is an inclusion of Liquidated Damage clause in building

construction contracts and 66.7 % of the respondents agree that there is a deduction of

Liquidated Damage when there is a delay by the contractor.

4.3.2.5. The Challenge of Liquidated Damage Provision in Court

Figure 4-4: Challenge of Liquidated Damage Provision in Court

The other issue is regarding the challenge of liquidated damage provision in court 73.33%

of the respondents were clearly stated they were challenged cases for court and the other

side 26.67% said they did not challenge in court for cases concerning liquidated damage.

59

4.3.2.6. Organizations which follows an Established Cost Estimating Technique

/Methodology in Preparing Liquidated Damage.

Figure 4-5: Organizations which follows an Established Cost Estimating Technique in

Preparing LD

From the above Figure 4-5 the majority of the respondents clearly stated (66.7 %) they

follow an established cost estimating technique in preparing liquidated damage and the

other (33.3 %) they said there is no established cost estimating technique.

60

4.3.3. Questions Related to Prolongation Cost Claims

4.3.3.1. The Occurrence Level of Prolongation Cost Claim in BDU Building Construction

Projects

Figure 4-6: Occurrence Level of Prolongation Cost Claim

The occurrence level of prolongation cost claim in Bahir Dar University building

construction projects from the respondents 40% of them stated there is a frequent

occurrence, 31.1% of the respondents mentioned that there is a least frequent occurrence

of prolongation cost claims and the other side 24.44% of the respondents clearly stated

there is no occurrence.

61

4.3.3.2. The Difficulty Level in Estimating Prolongation Cost Claim

Table 4-9: The Difficulty Level in Estimating Prolongation Cost Claim

The Difficulty Level in Estimating Prolongation Cost Claim

List of Cost Claims 1 2 3 4 RII Rank

Extended and Increased Site Costs (Site

Overheads or Preliminaries) 12 15 17 1 0.54 5

Head office overhead cost 7 21 15 2 0.57 3

Inefficiency/ Lost productivity cost 14 15 13 3 0.53 6

Financial Charges and Interest 6 14 20 5 0.63 1

Inflation 11 11 13 10 0.62 2

Loss of Profit/Opportunity cost 11 16 14 4 0.56 4

Claim Preparation Costs 7 11 23 4 0.63 1

1-Very Difficult 2-Difficult 3-Easy 4-Very Easy

The major difficulty level in estimating prolongation cost claim is both claim preparation

costs and finance charges and interest which have (RII=0.63), the second difficulty is

become inflation with (RII=0.62) and the third one is head office overhead cost has

(RII=0.57).

62

4.3.3.3. The Clarity of handling Prolongation Cost Claims in the Clauses or Conditions of

Contract

Figure 4-7: Clarity of handling Prolongation Cost Claims in Conditions of Contracts

Concerning the Clarity of handling prolongation cost claims in conditions of contracts,

25(55.6%) of the respondents mentioned there is a good clarity, 8(17.8%) of the

respondents said there are a fair clarity and 7(15.6%) of respondents they gave a poor

judgment to clarity of handling prolongation cost claims in conditions of contracts.

63

4.3.4. Questions Related with Extension of Time Claims

4.3.4.1. Average Delay of the Projects Exposed

Figure 4- 8: Average Delay of Projects Exposed

The majority of the respondents 57.78% said that in Bahir Dar University projects the

average delay of projects exposed is above 21%, 17.78% of respondents stated that

between 5-10% and 13.33% stated that it is in the range between 16-20%.

4.3.4.2. Action is taken when Projects are Getting Delayed

Figure 4-9: Action is taken when Projects are Getting Delayed

64

From the figure 4-9 the action taken during projects is getting delayed most projects

55.56% requested extension of time claims and 31.11% of projects employee more

resources.

4.3.4.3. Availability of Record-Keeping System in the Project

Table 4-10: Availability of Record-Keeping Systems in the Projects

Availability of a record-keeping system


Percent

Valid

Yes 31 68.9 68.9 68.9

No 10 22.2 22.2 91.1

Not Applicable 4 8.9 8.9 100.0

Total 45 100.0 100.0

The availability of record-keeping systems 68.9% of the respondents said they used and

22.2% of them were they did not have the availability of the record-keeping systems in

their companies.

4.3.4.4. Proper Documentation and Record-Keeping Systems can reduce the number of

Claims

Table 4-11: Proper Documentation and the Record-Keeping System can reduce no. Claims

Proper documents and record Keeping systems can reduce the number of claims


Percent

Valid

Yes 37 82.2 82.2 82.2

No 7 15.6 15.6 97.8


Total 45 100.0 100.0

82.22% of the respondents agree on proper documents and record-keeping systems can

reduce the number of claims and on the other side, 15.6% of them said this is not enough

to reduce the number of claims.

65

4.3.4.5. Lost Entitlement to a Claim due to Improper Documentation and Record-Keeping

Systems

Table 4-12: Lost Entitlement to a Claim due to Improper Documentation and Record-

Keeping Systems

Lost entitlement to a claim due to improper documentation and record-keeping


Percent

Valid

Yes 18 40.0 40.0 40.0

No 23 51.1 51.1 91.1


Total 45 100.0 100.0

Due to the improper documentation and record-keeping majority, 51.1% of the

respondents did not lose entitlement to a claim and the other side 40% of the respondents

said they lost entitlement to a claim due to this.

4.3.4.6. Type of Claim Most Recent or Current Projects Face

Table 4-13: Types of Claims Most Recent or Current Projects Faced

Type of claim most recent or current projects faced


Percent

Valid

Extension of time 43 95.6 95.6 95.6

Acceleration cost claims 2 4.4 4.4 100.0

Total 45 100.0 100.0

The majority of the respondents 95.6% agreed on an extension of time is a type of claim

most recent current projects faced and 4.4% of the respondents mentioned there is an

acceleration cost claims happened in current projects.

66

4.3.4.7. Reasons for Project Delay that Could Justify Extension of Time

Table 4-14: Reasons for Project Delay that Could Justify Extension of Time

Reasons for Project Delay that Could Justify Extension of Time

Reasons for the Project Delay 1 2 3 4 RII Rank

Force majeure 9 19 8 9 0.59 5

Exceptionally inclement weather 4 19 15 7 0.64 3

Late instructions, drawings or level 0 11 14 20 0.8 1

Delay in the supply of materials and goods by the

employer 9 14 11 11 0.63 4

Testing and inspection 6 27 8 4 0.56 6

Delay in giving possession of site 4 19 11 11 0.66 2

1-Never 2-Sometimes 3-Often 4-Very Often

The major reasons for project delay that could justify an extension of time are late

instructions, drawings or level becomes the 1st rank with (RII=0.8), Delay in giving

possession of site is becomes 2nd rank with (RII=0.66) and exceptionally inclement

weather becomes 3rd rank with (RII=0.64).

4.3.4.8. Common Mistakes by the Contractor during the Request of Extension of Time

Table 4-15: Common Mistakes by the Contractor during the Request of Extension of Time

Common Mistakes by the Contractor during the Request of Extension of Time

Common Mistakes 1 2 3 4 RII Rank

Late or lack of notice from the contractor 3 16 15 11 0.68 2

Failure to recognize delay or failure to describe

the cause of delay 5 21 11 8 0.62 4

Failure to state the date when delay commenced

and the period of delay 7 17 14 7 0.62 5

Poor presentation of the application to show how

the progress of the work has been delayed 6 22 10 7 0.6 6

Lack of proper baseline schedule 5 8 25 7 0.68 2

Lack of proper site records and particulars relied

upon 2 15 23 5 0.67 3

Insufficient quality of information (Information is

not kept and not updated) 3 16 14 12 0.69 1

1-Never 2-Sometimes 3-Often 4-Very Often

67

From the common mistakes by the contractor during request of extension of time

insufficient quality of information (information is not kept and not updated) is become the

1st rank with (RII=0.69), lack of proper baseline schedule and Late or lack of notice from

the contractor are become 2nd rank with (RII=0.68) and lack of proper site records and

particulars relied upon becomes 3rd rank with (RII=0.67).

68

4.3. Case Study on Extension of Time

All eight case studies were based on information obtained from project documents

including extracts of relevant records such contract documents, a notice of delay, work

program, correspondence, and records relating to an extension of time issues, minutes of

meetings, progress reports, rainfall records, and other data furnished by the relevant

companies. The case studies and analysis are presented to highlight both the legal and

technical aspects of claims submitted by contractors, the validity of the grounds claimed,

the sufficiency of the methods used in arriving at the number of days claimed and the

methods which contract administrators used in evaluating contractors. The projects were

selected based on the willingness of the contractors to share information.

4.3.1. Case Study-1

Project Name: EiTEX Lot-5

Client: Bahir dar University

Consultant: B.U.D.S.W.S

Contractor: Yotek Construction Plc.

Site hand-over date: 18/05/2008E.C

Mobilization: 21 days

Total Contract days: 540 days

Commencement date: 10/06/2008 E.C

Date of completion: 05/12/2009E.C

Days extended due to variation works:

123 days

Days granted before variation: 202 days

Days currently requested: 610 days

Days currently approved: 53 days

Total project days: 918 days

69

Table 4-16: Case Study-1 for EoT

s.n Justification for request R G Justification for approval

01 Late material delivery of sub-

contractor and foreign

currency exchange problem

381 53 Executed work on between request of

extension of time from 03/01/2018-

18/06/2018 is 166 days 52,433,649.06

executed amount

52,433,649.06 ∗ 540 𝑑𝑎𝑦𝑠

251,130,916 = 113 days

So, 53 days granted by deduction 113 days

from 166 days

02 The late decision regarding

mechanical installation works

98 - Granted before

03 Delayed indoor & Cupboard

specification detail

143 - The request will be considered on the

future request

04 A late decision regarding

specification detail for

lightbox.

30 -

05 Late in a plan for fashion

event presentation hall

39 - Granted on request “01”

Total Days 691 53

(G-Contractor’s Extension of Time Granted) (R-Contractor’s Extension of Time

Requested)

Analysis of Case Study-1

From the above case –study 1 the researcher tried to analyze the major reasons for the

contractors' requested days and consultants' approved days.

Total project days are 918 days

Total number of days requested by the contractor was 691 days

Percentages (%) of days requested to total project days= (691/918)*100=75.3%

Total number of days approved by the contractor was 53 days

Percentages (%) of days approved to total project days= (53/918)*100= 5.8%

The major reason for an extension of time granted was the late material delivery of sub-

contractor and foreign currency exchange problems.

70

4.3.2. Case Study-2

Project Name: EiTEX Lot-VII



Contractor: FE Construction Plc.






Days extended due to variation works: 19

days





Table 4-17: Case Study-2

s.n Justification for Request R G Justification for Approval

01 Additional works for fence

work

66 54

02 Late sanitary drawing detail

manhole specification

69 - Not granted because of the work

detail will not affect other works

03 Change order for modification

works

46 45 From 14/05/2010-29/06/2010 E.C a

total of 45 days granted

04 Change order due to finishing

materials approval

98 29 Total cost is 352758958.67

29 days granted for delay of marble

05 Late approval of epoxy color

for aluminum works

316 16 A total of 16 days granted due to

delay in selection of aluminum

sample

06 Late in a decision regarding

finishing works plan

differences

40 - The request is rejected due to it is not

according to work plan

07 Delayed payment 79 - The requested days are below 90

days which stated under contract

document the contractor not granted

Total Days 445 144

71

Analysis of Case-study-2





Percentages (%) of days requested to total project days= (445/941)*100=47.3 %


Percentages (%) of days approved to total project days= (144/941)*100= 15.3%

The major reasons for the extension of time granted were:

Additional works for fence work granted 54 days which has (54/144)*100=37.5% from

the total granted days.

Change order for modification works granted 45 days which has (45/144)*100=31.25%

from the total granted days.

Change order due to finishing materials approval granted 29 days which has

(29/144)*100=20.1% from the total granted days.

4.3.3. Case Study-3

Project Name: EiTEX Lot-VII



Contractor: Yotek Construction Plc.







days





72


s.n Justification for request R G Justification for approval

01 Late in re-design of training &

main store workshop block

25 - The contractor did not include

training & main store workshop in

the work schedule

02 Late in a decision regarding

selection of dumping area for

boulder stone

5 2 Executed Work b/n 11/06/2008-

16/06/2008 E.C is 1,291,016.47

1,291,016.47 ∗ 540 𝑑𝑎𝑦𝑠

251,730,916 = 3 days

So, 2days was granted

03 The late decision to right of

way problems

15 4 The contractor stopped work for 20

days from 07/08/2008-27/08/2008

E.C executed work was 7,257,652.69

in other buildings.

7,257,652.69 ∗ 540 𝑑𝑎𝑦𝑠

251,730,916 = 16 days

So, 4 days granted by deduction 16

days from 20 days.

04 Different variation works 9 - Granted in number 2

05 Work interruption due to

political un-rest

11 11 The reason is accepted


fixing of ramp height

90 - The work is suspended due to

compound landscape work.


selection of electrical materials

from flush to surface-mounted

120 2 Contractors variation work amount is

772,295

772,295 ∗ 540 𝑑𝑎𝑦𝑠

251,730,916 = 2 days


differences in specification

detail for door & cupboard

60 -

09 Late decision regarding

to a difference in drawing b/n

structural & architectural for

fashion hole roof plan

85 11 Cost for different steel truss, ceiling

and some mechanical installation

works is 5,145,413.92

5,145,413.92 ∗ 540 𝑑𝑎𝑦𝑠

251,730,916 = 11 days

Total Days 420 30

73

Analysis of Case study-3





Percentages (%) of days requested to total project days= (420/840)*100=50 %


Percentages (%) of days approved to total project days= (30/840)*100=3.6 %


Work interruption due to political un-rest granted 11 days which has (11/30)*100=36.7%


A late decision regarding the difference in drawing b/n structural & architectural for

fashion hole roof plan granted 11 days which has (11/30)*100=36.7% from the total

granted days.

A late decision to right of way problems granted 4 days which has (4/30)*100=13.3%


4.3.4. Case Study-4

Project Name: BiT Students Dormitory



Contractor: Nasew Construction Plc.







Days granted before variation: -




74



01 Late due to wastewater

drainage pipe is located in a

site

12 12 Granted for late possession of site

02 Contract agreement differences

for sites regarding employees

10 - It was the contractors responsibility

to observe the site before bid

submission

03 Late due to demolish up to re-

constructing of shade for

backing injera

63 61 Granted total of 61 days from Dec

22/2010- Feb 22/2010 E.C

04 Due to additional works

concerning with FFL

15 15 Granted due to late decision

regarding floor finish level difference

05 Due to variation works for

boulder fill

16 - Consider after detail work schedule

will be approved

06 Rainy season from June-

September,2010 E.C

14 - Contractor submitted insufficient

document considering the case

07 Due to flood & increase height

of under-ground water during

summer

125 125 Granted a total of 125 days from July

17/2010- Dec 10/2011

08 Design change for footing

from mat to isolated pad

45 36 Granted from 24/03/2011 E.C –

30/04/2011 E.C by deduction of

0.14% executed work which is 1 day

09 Due to variation work for

basement excavation

12 - The case is similar to case-5 above


clarification for bent up pad

combined footing

92 27 Granted from 27/07/2010 –

23/08/2010 E.C of 27 days

11 Delay in approval for materials

& samples

22 - It is the contractors obligation to

approve on time

12 Delay in advance payment 16 -

13 Absence of resident engineers

on site

30 -

14 Delay in approval of

contractor’s engineers by

consultant

29 -

15 Additional works for water

percolation

13 -

75

16 Delay in materials delivery

from abroad

11 -

17 Due to religious ceremonies 19 - The reason is not accepted b/c it is

not included under contract

agreement

Total Days 354 276


From the above case Study-4 the researcher tried to analyze the major reasons for the








Due to flood & increase height of under-ground water during summer granted 125 days

which has (125/276)*100=45.3 % from the total granted days.

Late due to demolish up to re-constructing of shade for backing injera granted 11 days


Design change for footing from mat to isolated pad granted 36 days which has

(36/276)*100=13.1% from the total granted days.

4.3.5. Case Study-5

Project Name: Sports Academy Finishing



Contractor: Gad Construction Plc.






Days extended due t variation works: 108

Days granted before variation: 878

Total extended days: 996


76

Days currently approved: 173 days Total project days: 1709 days



01 Late in fixing & displacing of

telecommunication pole and

incinerator store

29 29 October planned work is

3,751,950.63 Executed work is

104,982.15

3,751,950.63−104,982.15

3,751,950.63 * 30 = 29 days

02 Same case to the above 25 25 November planned work is


256,392.42

1,593,846.33−256,392.42

1,593,846.33 * 30 = 25 days

03 Same case 30 30 December planned work is

9,211,845.59 Executed work is 0.00

9,211,845.59−0.00

9,211,845.59 * 30 = 30 days

04 Same case 29 29 January planned work is


226,961.23

8,976,265.57−226,961.23

8,976,265.57 * 30 = 29 days

05 Same case 30 30 February planned work is


254,620.89

15,981,686.34−254,620.89

15,981,686.34 * 30 = 30 days

06 Due to security problem during

graduation week

5 -

07 Late in possession of the site 85 -

08 Delay in material delivery

from abroad and delay in

payment

29 29 March planned work is 2,143,257.59

Executed work is 105,130.99

2,143,257.59−105,130.99

2,143,257.59 * 30 = 29 days



payment

30 30 April planned work is 5,772,216.51

Executed work is 9,248

5,772,216.51−9,248

5,772,216.51 * 30 = 30 days



30 30 May planned work is 14,285,430.26

Executed work is 279,297

77

payment 14,285,430.26−279,297

14,285,430.26 * 30 = 30 days



payment

30 25 June planned work is 11,326,057.6

Executed work is 0.00

11,326,057.6−0.00

11,326,057.6 * 30 = 25 days



payment

30 25 July planned work is 1,911,437.49

Executed work is 337,000.05

1,911,437.49−337,000.05

1,911,437.49 * 30 = 25 days

Total Days 382 282










Late in fixing & displacing of telecommunication pole and incinerator store granted 143

days which has (143/282)*100=50.7 % from the total granted days.

Delay in material delivery from abroad and delay in payment granted 139 days which has

(139/282)*100=49.3 % from the total granted days.

4.3.6. Case Study-6

Project N: Library Building (Poly Lot II)












78






01 Additional works for compound

water supply installation

60 - Granted before on this issue

02 Late supply of water supply line

drawing

180 76 Granted 76 days by deduction of

executed work days 13 days from

10/02/2010-8/5/2010 E.C , 89 days

3,084,354.64∗475

113,291,239.75 * 30 days= 13 days

03 Additional works for ditch

cover & Main building entrance

aluminum guard rail

90 - The case will be seen during actual

work accomplished

Total Days 330 76









The major reason for the extension of time granted was:

Late supply of water supply line drawing granted 76 days which has (76/76)*100=100 %


79

4.3.7. Case Study-7

Project N: Eth. Maritime training center

Client: Bahir Dar University
















01 Additional works for boat slipway 75 75

02 for acceleration work of the hall 71 71

03 For d/t variation & additional

works

243 15

04 Roof slab design problem 320 269

05 Additional works for procurement,

supply, and installation for

generator

800 628

Total Days 1526 1058


From the above case study-7 the researcher tried to analyze the major reasons for the







80


Additional works for procurement, supply, and installation for generator granted 628 days


Roof slab design problem granted 269 days which has (269/1058)*100=25.4 % from the

total granted days.

Additional works for boat slipway granted 75 days which has (75/1058)*100=70.9 % from

the total granted days.

4.3.8. Case Study-8

Project N: BiT Workshop & Laboratory

Client: Bahir Dar University


Contractor: Flintstone Engineering

Site hand-over date: 06/08/2010 E.C




Date of completion: 26/08/2012 E.C

Days extended due to t variation works: -

Days granted before variation: -

Total extended days: -






01 Late possession of the site 21 21

02 Late for advance payment 96 30

03 Late in design change for FFL 9 9

04 Late in 2nd & 3rd advance payment

and possession of the site

256 215

05 Late in possession of the site 29 20

Total Days 411 295

81


From the above case study-8 the researcher tried to analyze the major reasons for the








Late in 2nd & 3rd advance payment and possession of the site granted 215 days which has

(215/295)*100=72.9 % from the total granted days.

Late for advance payment granted 30 days which has (30/295)*100=10.2 % from the total

granted days.

Late possession of the site granted 21 days which has (21/295)*100=7.1 % from the total

granted days.

82

4.3.9. Summary of the Major Reasons for Granted of Extension of Time Case Studies

In this thesis the researcher tried to analyze the major reasons for granted of EoT from

Case-study documents in which contractor’s requested and consultant’s approved based

on the cases.

Table 4-24: Summary of the Major Reasons for Granted of Extension of Time Case

Studies

The Major Reasons for Granted of Extension of Time in Case Studies

Case-Study 1 1

Late material delivery of sub-contractor and foreign

currency exchange problems

Case-Study 2 1 Additional works for fence work

2 Change order for modification works

3 Late instructions for finishing materials

Case-Study 3 1 Force majeure due to political un-rest

2 Late instruction regarding fashion hole roof plan

3 Late possession of right of way problems

Case-Study 4 1 Force majeure due to flood

2 Late possession of site

3 Design change for footing pad

Case-Study 5 1 Late possession of site

2 Delayed payment

Case-Study 6 1 Late supply of water supply line drawing

Case-Study 7 1 Additional works for generator work

2 Late re-design of roof slab

3 Additional works for boat slip way

Case-Study 8 1 Late in 2nd & 3rd advance payment and late

possession of site

2 Late advance payment

3 Late possession of site

83

Table 4-25: Frequency of Major Reasons for Granted of Extension of Time Case Studies

No. Major Reasons Frequency Rank

1 Force Majeure 3 3

2 Additional Works 3 3

3 Change Order and Modification 2 4

4 Late Instruction/ Drawing 4 2

5 Late Possession of Site 5 1

6 Delayed Payment 3 3

The above table 4-25 showed the major reasons by using frequency of major reasons for

granted of extension of time in case-studies are late possession of site, late instruction/

drawing and additional works in ranked order for 1st, 2nd and 3rd respectively.

84

4.4. Case - Study on Liquidated Damage

In this thesis all seven liquidated damage case studies collected from on-going and

finished Bahir Dar University Building Construction Projects and the main aim of the

case-studies was have concerning with practice and implementation of liquidated damage

clauses when projects are delay due to contractor’s fault.

4.4.1. Case Study-1 for Liquidated Damage

Project Detail/ Description

Project Name Medical Faculty Lot III

Client Bahir Dar University

Consultant B.U.D.S.W.S

Contractor Yencomad Construction Plc.

Date of Contract Signature Feb, 13th/2014 GC.

Main Contract Amount 179,124,257.60 ETB

Supplementary Contract 303,755,759.24 ETB

Variation Work Amount 20,711,660.41 ETB

Total Contract Sum 503,591,677.25 ETB

Total Executed Work including VAT (15%) 256,878,434.10

Un-justified delay days 3.77 days

Liquidated Damage/Penalty Amount 901,763.76 ETB

85



Project Name Class Room & Laboratory



Contractor Orbit Engineering & Construction Plc.

Date of Contract Signature March, 4th/2006 EC.

Main Contract Amount 66,783,018

Supplementary Contract

Variation Work Amount 5,336,828.22

Total Contract Sum 72,119,847.18


Un-justified delay days 144 days

Liquidated Damage/Penalty Amount 1,711,825.08 ETB



Project Name Class Room & Laboratory



Contractor ETETE Construction Plc.

Date of Contract Signature Dec, 19th/2016 GC.

Main Contract Amount 67,942,872.3

Supplementary Contract 14,549,328.77

Variation Work Amount 47,0834.19



Un-justified delay days 33 days


86



Project Name Medical Faculty Lot III



Contractor Yencomad Construction Plc.











Project Name Medical Faculty Lot IV



Contractor T/ Birhan Ambaye Construction Plc.

Date of Contract Signature August, 12th/2015 GC.







Liquidated Damage/Penalty Amount 3,043,912.21 ETB

87



Project Name Medical Faculty Lot V- Laboratory



Contractor SATCON Construction Plc.

Date of Contract Signature Oct, 06th/2009 GC.



Variation Work Amount







Project Name Eitex Lot VII



Contractor FE Construction Plc.





Total contract Sum 391,892,230.12




88

4.4.8. Sample Calculation for Liquidated Damage/ Penalty Amount for Case-Studies

Example

To clarify the above case-studies for liquidated damage/ penalty amount the researcher

tried to show up by using case-study 7 as an example in the following manner.

Liquidated Damage/ Penalty Amount = 0.1% * 1.1 *

(391,892,230.12 - 269,435,845.06)

Liquidated Damage/ Penalty Amount = 126,973.08 ETB

Liquidated Damage/ Penalty Amount = 0.1%* Un-justified delay days *

(Total Contract Sum-Total Executed Work including VAT (15%))

…………………………………………………………………………………..Eqn. 2

89

4.4.9 Summery of BDU Projects that Attracted Liquidated Damage

Table 4-26: Summery of BDU Projects that Attracted Liquidated Damage

Project Name Contractor Consultant Contract Sum Value of Liquidated

Damage Imposed

% of liquidated

damage from

Contract Sum

Reasons for Imposition of

Liquidated Damage

Medical

Faculty Lot III

Yencomad

Construction Plc.

B.U.D.S.W.S 179,124,257.60 ETB 901,763.76 ETB 0.51% Delays and Late Completion

Class Room &

Laboratory

Orbit Engineering

& Construction

Plc.

B.U.D.S.W.S 72,119,847.18 ETB 1,711,825.08 ETB 2.34% Delays and Late Completion

Class Room &

Laboratory

ETETE

Construction Plc.


Medical

Faculty Lot III

Yencomad

Construction Plc.


Medical

Faculty Lot IV

T/Birhan Ambaye

Construction Plc.

B.U.D.S.W.S 275,198,426.57 ETB 3,043,912.21 ETB 1.1% Delays and Late Completion

Medical

Faculty Lot V-

Laboratory

SATCON

Construction Plc.


Eitex Lot VII FE Construction

Plc.


90

4.4.10. Analysis of Liquidated Damage Case-Studies

In this thesis the researcher tried to analyze the liquidated damage practice and

implementation in Bahir Dar University building projects. During documentation review

there is a clause concerning liquidated damage included in special condition of the

contract documents stated under both PPA, 2006 (in clause, 49 Liquidated Damages) and

FPPA, 2011 (in clause under clause, 27 Liquidated Damages ).

During documentation review the researcher got 7 building projects which are attracted

liquidated damage because of projects were delayed from approved program schedule and

summarized in the above table. The estimation practice was by using the following

formula which stated in contract agreement document.

Where

Un-justified Delayed Days= days which the project has been delayed because of

contractor’s default

Total Contract Sum= is the total project contract amount

Total Executed work including VAT (15%) = is the executed work amount until project

delayed days

Liquidated Damage/ Penalty Amount = 0.1%* Un-justified delay days *

(Total Contract Sum-Total Executed Work including VAT (15%))

…………………………………………………………………………………..Eqn. 2

91

4.4.11. Correlating the Questionnaire and Case Study Findings

Concerning the practice of contract management principles for the liquidated damage in

questionnaire the respondents agreed that (88.9%) there is an inclusion of liquidated

damage in their construction contracts. In case studies the researcher tried to assessed

weather or not the construction contracts contain liquidated damage in their contract and

got 7 delayed projects with implementation of liquidated damage/ penalty amount and the

client (BDU) collected a compensation for the project delay due to the contractors default.

Concerning to organizations that follow an established cost-estimating technique/

methodology in preparing liquidated damage; most of the respondents’ clearly stipulated

they follow an established way which is stated in both PPA, 2006 and FPPA, 2011 (in

clause “in clause, 49 Liquidated Damages” and “in clause under clause, 27 Liquidated

Damages” respectively) for estimating and in case-studies, the researcher checked how the

way consultants estimated the liquidated damage/ penalty amount by using the formula

stated in contract document.

The questionnaire respondents stated, the major reasons for project delay that could justify

extension of time were ranked late instructions or drawing, delay in giving possession of

site and exceptionally inclement weather respectively. In case-studies, the main reasons

for project delay that could justify extension of time were ranked late instructions or

drawing, late possession of site and additional works respectively.

92

CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

This chapter contains conclusions, recommendations and recommended further study.

Conclusions constitute the recapitulative of major findings from the study and analysis of

case-studies, linking them to the objectives of the research study. Recommendation

section highlights the practical implications of the study and suggests further research

studies.

5.1. Conclusions

To achieve the stated objectives, the research adopted case studies coupled with

questionnaire survey as research instruments. The information gathered from the survey

was analyzed using the relative importance index and the reliability of the questionnaire

was ensured by testing with the Cronbach's co-efficient alpha through SPSS 21.

Based on the analysis and discussion results the following conclusions are derived and

summarized in accordance with the research's objectives.

1. The types of contractor’s cost claims related to project prolongation are extended and

increased site costs (site overheads or preliminaries), head office overhead cost,

inefficiency/ lost productivity cost, financial charges and interest, inflation, loss of

profit/ opportunity cost and claim preparation costs. The difficulty level in estimating

prolongation cost claim both financial charges and interest and claim preparation costs

are in the 1st rank, on the other hand inflation, head office overhead cost and loss of

profit/ opportunity cost are in rank 2nd, 3rd and 4th respectively.

2. The major reasons for contractors working in Bahir Dar University building projects

of extension of time claims submissions are force majeure, exceptionally inclement

weather, late instructions or drawings, delay in the supply of materials and goods by

the employer, testing and inspection and delay in giving possession of site. From these

reasons late instructions or drawing is in the 1st rank, delays in possession of site,

exceptionally inclement weather are in the 2nd rank and 3rd rank respectively.

93

3. In Bahir Dar University liquidated damage clause is included in contract document

and implemented for projects delayed from their intended project completion dates due

to contractors default. The calculation for a liquidated damage is based on stated in

special condition agreement.

4. Liquidated damage clause is the most common mechanism used in Bahir Dar

University building projects to compensate the Owner for losses caused by delays that

are the fault of the contractor.

5.2. Recommendations

1. Contractors should give a big concern about their documentation and

record keeping system at project sites. It is seen in the research that, there

exist a problem of documentation and poor record keeping system to justify

their claim requests. Site diaries, weather condition reports, material approval

slips and site minutes shall be kept properly at project sites.

2. Contractors should allocate claim expertise and contract engineer to handle any claim

related issues and to administer record keeping of projects. In addition; every written

record shall be changed into soft copy and stored in computer data base system.

3. Consultants need to work to achieve timely response for issues forwarded from the

Contractor and they should resolve unsettled right of way problem and design issues

before construction bid floats besides they should experience granting time extension

even the cause was their office.

4. Consultant should work on drawing carefully and on timely approval to eliminate

design discrepancies and errors.

5. Client should finalize the project’s design before commencement of the works and

should not make changes to the project unless it is absolutely essential.

6. Client should provide the right of way and has to furnish and deliver the site to the

contractor on time. Before the construction starts the client has to fulfill all the

necessary requirements for delivering the site. Failure to deliver the site will cause

time and cost overrun.

94

5.3. Future Study

A potential link between the standard of construction planning and the ability to obtain

extension of time and/or succeed in successfully prosecuting a delay claim.

The effect of proper documentation management in administering Extension of Time

and prolongation Cost claims.

Determine or estimate percentage rate of Prolongation Cost as that of liquidated

damage for a contractor.

95

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99

APPENDIX-1: QUESTIONNAIRE

BAHIR DAR UNIVERSITY

BAHIR DAR INSTITUTE OF TECHNOLOGY

Degree of Masters of Science in Civil Engineering

(Construction Technology and Management)

Dear Sir/Madam Date: ………………………

I am Ephrem Tilahun student of a master’s degree at Bahir Dar University Institute of

Technology Faculty of Civil Engineering in the specialization of Construction Technology

and Management. Now I am working for my thesis work for the requirement of master’s

degree graduation on the topic of “Practice and Implementation of Prolongation Cost

Claim, Liquidated Damage and Extension of Time in Public Building Construction

Projects: (A case Study on Bahir Dar University Building projects)”.

To complete my thesis work there is data needed from your organization so that your

contribution has valued the research. Thank you for your contribution.

Section A: Respondents General Information

Section B: Questions Related with Liquidated Damage

Section C: Questions Related with Prolongation Cost

Section D: Questions Related with Extension of Time

Student Name: Ephrem Tilahun

Advisor : Ahmed Mohamed….(PhD)

Co-advisor : Rahel Ayalew……...(MSc)

Your response, in this regard, is highly valuable and contributory to the outcome of

the research. Thank you for your invaluable time and cooperation in advance.

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Section-A

Respondents General Information

1. Which side you are working for?

Contractor Consultant Client

2. Gender Male Female

3. What is your job position in the company?

Project manager Site Engineer Office Engineer Resident

Engineer

4. What is your Professional Experience?

0-5 years 5-10 years 10-15 years 15 years and above

5. What is your educational qualification?

Diploma BSc MSc PhD

Section-B

Questions related to Liquidated Damage

1. Which of the following test of Liquidated Damage is easy to satisfy;

Please tick the following 1: Most easy, 2: Easy, 3: Fairly easy and 4: Not easy.

No Factors that prevent the application of Liquidated

Damage

1 2 3 4

1 The parties must intend to liquidate (i.e. stipulate to the

amount) the damages in advance

2 The damages anticipated as a result of the contract breach

(such as a contractor’s delay must be uncertain in amount

or difficult to prove

3 The amount stipulated must be reasonable, that is to say,

not greatly disproportionate to the anticipated loss or injury

(Estimates)

2. As an alternative to Liquidated Damages, what would you recommend for parties

to a contract in the event of delays? (Please rank them using the scale from; 1-

Least recommended, 2- Merely recommended, 3- recommended, 4 – More

recommended)

Liquidated Damage in this research refers to the cost compensation for employer due

to project delay resulting from contractor’s default.

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No Alternatives to enhance the enforcement of the Liquidated

Damage clause.

Ranking

1 Insurance against losses

2 Bonus clause for early completion

3 Suing the contractor for the damages suffered

4 Determination / Termination of contracts and retender

3. How would liquidated damages clauses in building construction contracts impact on

building construction? (Please tick the following, [1]: Not at all [2]: Slightly

[3]: Moderately [4]: Very [5]: Extremely)

No Possible impacts of the application of Liquidated

Damage

1 2 3 4 5

1 Promote timely project completion

2 Reduce rampant unapproved delays of projects

3 Improve project performance with respect to time

4 Lead to intimidated and apprehension of building

contractors prior to entering into contract agreements

4. How are the following contract management principles practiced in your project

concerning Liquidated Damage?

No Effective contract management principles concerning LD. Yes No

1 Inclusion of Liquidated Damage clause in building construction contracts

2 Deduction of Liquidated damage when there is a delay by the contractor

3 Granting of EOT when there is a delay not due to the client’s organization

4 Repayment of Liquidated Damage, when EOT is granted subsequently

5. Has your Liquidated Damage provision ever been challenged in court?

Yes No

6. Does your organization follow an established cost estimating

technique/methodology in preparing Liquidated damage estimates?

Yes No

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Section-C

Questions related to Prolongation Cost Claims

1. How do you level the occurrence of prolongation cost claim in building

construction projects?

Most Frequent Frequent Least Frequent

No Occurrence

2. How clear and understandable are the concepts and ideas presented in the clauses

of the conditions of contract currently used in handling prolongation cost claim?

Very Good Good Neutral Fair Poor

3. How do you level the difficulty in estimating prolongation cost for the cost claims

listed below; please level them as per the degree of difficulty to estimate?

1: Very difficult 2: Difficult 3: Easy 4: Very easy

No. List of cost claims 1 2 3 4

1 Extended and Increased Site Costs ; (Site Overheads or Preliminaries)

2 Head office overhead cost

3 Inefficiency/ Lost productivity cost

4 Financial Charges and Interest

5 Inflation

6 Loss of Profit/Opportunity cost

7 Claim Preparation Costs

Section-D

Questions related to project delay Extension of Time claims

1. In your opinion what is the average delay in the project you have been exposed to?

5-10% 11-15% 16-20% Above 21%

Prolongation cost in this research refers to the cost incurred by the

contractor due to prolonged time period (delay) resulting from employer risk events.

103

2. What action do you take when you realize that your project is getting delayed?

Ask for Extension of Tim Recapitalize the project

Employ more resources Change the structural organization

Sub-contract the works Request for changes of scope and obligation

3. Is there a record-keeping system that documents all correspondence that has been

issued and received in the project you worked on?

Yes No Not applicable

4. Do you feel that proper documents and record-keeping systems can reduce claim

numbers and help to solve disputes?

Yes No Not applicable

5. Have you lost your entitlement to a claim due to improper documentation and

record-keeping system?

Yes Not Not applicable

6. What type of claim did your most recent or current project face? (More than one

choice can be selected).

Extension of Time Claims Prolongation Claims

Acceleration Claim Other/ please specify……………………..

7. In your opinion, please rate the significant reasons for the delay in which an

extension of time may be given. [1] Never [2] Sometimes [3] Often [4] Very

Often

No Reasons That Could Justify Extension of Time 1 2 3 4

1 Force majeure

2 Exceptionally inclement weather

3 Late instructions, drawings or level

4 Delay in the supply of materials and goods by the employer

5 Testing and inspection

6 Delay in giving possession of the site

104

8. Based on your experiences, what are the common mistakes by the contractor

during the request of extension of time?

[1] Never [2] Sometimes [3] Often [4] Very Often

No Common Mistakes 1 2 3 4

1 Late or lack of notice from the contractor

2 Failure to recognize delay or failure to describe the cause of

delay

3 Failure to state the date when delay commenced and the period

of delay

4 Poor presentation of the application to show how the progress of

the work has been delayed

5 Lack of proper baseline schedule

6 Lack of proper site records and particulars relied upon

7 Insufficient quality of information (Information is not kept and

not updated)

105

APPENDIX-2: CLAUSES IN FIDIC MDB, 2010 CONCERNING WITH

EXTENSTION OF TIME AND PROLONGATION COST CLAIMS

A. Delayed Drawings or Instructions

In FIDIC MDB 2010 Clause, 1.9 stated issues in delayed drawings or instructions, if the

Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer ….the

Contractor shall give further notice to the Engineer and shall be entitled subject to Sub-

Clause 20.1 [Contractor’s Claims] to:

a) An extension of time for any such delay, if completion is or will be delayed, under

Sub-Clause 8.4 [Extension of Time for Completion]

b) Payment of any such Cost plus profit, which shall be included in the Contract Price.

B. Right of Access to the Site

In Clause 2.1 mentioned the contractor’s right to access to the site, if the Contractor

suffers delay and/or incurs Cost as a result of a failure by the Employer to give any such

right or possession within such time, the Contractor shall give notice to the Engineer and

shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:


Sub-Clause 8.4 [Extension of Time for Completion], and


C. Setting Out

In Clause 4.7 stated about setting out if the Contractor suffers delay and/or incurs Cost

from executing work which was necessitated by an error in these items of reference, and

an experienced contractor could not reasonably have discovered such error and avoided

this delay and/or Cost, the Contractor shall give notice to the Engineer and shall be

entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:



b) Payment of any such Cost plus profit, which shall be included in the Contract.

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D. Unforeseeable Physical Conditions

Under Clause 4.12 stated about unforeseeable physical conditions ( a contractor encounter

excluding climatic conditions), If and to the extent that the Contractor encounters physical

conditions which are unforeseeable, gives such a notice, and suffers delay and/or incurs

Cost due to these conditions, the Contractor shall be entitled subject to notice under Sub-

Clause 20.1 [Contractor’s Claims] to:



b) Payment of any such Cost, which shall be included in the Contract Price.

E. Testing

In Clause 7.4 If the Contractor suffers delay and/or incurs Cost from complying with these

instructions or as a result of a delay for which the Employer is responsible, the Contractor

shall give notice to the Engineer and shall be entitled subject to Sub- Clause 20.1

[Contractor’s Claims] to:




F. Rejection of tests

Under Clause 7.5 stated as if the Engineer requires this Plant, Materials or workmanship

to be retested, the tests shall be repeated under the same terms and conditions. If the

rejection and retesting cause the Employer to incur additional costs, the Contractor shall

subject to Sub-clause 2.5 [Employer’s Claims] pay these costs to the Employer.

G. Remedial Work

In Clause 7.5 mentioned if the Contractor fails to comply with the instruction; the

Employer shall be entitled to employ and pay other persons to carry out the work. Except

to the extent that the Contractor would have been entitled to payment for the work, the

Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay to the Employer all

costs arising from this failure.

107

H. Extension of Time for Completion

Under Clause 8.4 listed out the issues the Contractor shall be entitled subject to Sub-

Clause 20.1 [Contractor’s Claims] to an extension of the Time for Completion if and to

the extent that completion for the purposes of Sub-Clause 10.1 [Taking-Over of the Works

and Sections] is or will be delayed by any of the following causes:

a) A Variation (unless an adjustment to the Time for Completion has been agreed under

Sub-Clause 13.3 [Variation Procedure]) or other substantial change in the quantity of

an item of work included in the Contract,

b) A cause of delay giving entitlement to an extension of time under a Sub-Clause of

these Conditions,

c) Exceptionally adverse climatic conditions,

d) Unforeseeable shortages in the availability of personnel or Goods caused by an

epidemic or governmental actions, or

e) Any delay, impediment or prevention caused by or attributable to the Employer, the

Employer’s Personnel, or the Employer’s other contractors.

I. Delays Caused by Authorities

In Clause 8.5 stated if the following conditions apply, namely:

a) The Contractor has diligently followed the procedures laid down by the relevant

legally constituted public authorities in the Country,

b) These authorities delay or disrupt the Contractor’s work, and

c) The delay or disruption was Unforeseeable,

Then this delay or disruption will be considered as a cause of delay under sub-paragraph

(b) of Sub-Clause 8.4 [Extension of Time for Completion].

J. Rate of progress

Under Clause 8.6 if the revised methods cause the Employer to incur additional costs, the

Contractor shall subject to notice under Sub-Clause 2.5 [Employer’s Claims] pay these

costs to the Employer, in addition, to delay damages (if any) under Sub-Clause 8.7 below.

“Additional costs of revised methods including acceleration measures, instructed by the

Engineer to reduce delays resulting from causes listed under Sub-Clause 8.4 [Extension of

108

Time for Completion] shall be paid by the Employer, without generating, however, any

other additional payment benefit to the Contractor”.

K. Delay Damages

In Clause 8.7 stated, “If the Contractor fails to comply with Sub-Clause 8.2 [Time for

Completion], the Contractor shall subject to notice under Sub-Clause 2.5 [Employer’s

Claims] pay delay damages to the Employer for this default”. These delay damages shall

be the sum stated in the Contract Data, which shall be paid for every day which shall

elapse between the relevant Time for Completion and the date stated in the Taking-Over

Certificate. However, the total amount due under this Sub-Clause shall not exceed the

maximum amount of delay damages (if any) stated in the Contract Data.

These delay damages shall be the only damages due from the Contractor for such default,

other than in the event of termination under Sub-Clause 15.2 [Termination by Employer]

prior to completion of the Works. These damages shall not relieve the Contractor from his

obligation to complete the Works, or from any other duties, obligations or responsibilities

which he may have under the Contract.

L. Consequences of Suspension

Under Clause 8.9 stated if the Contractor suffers delay and/or incurs Cost from complying

with the Engineer’s instructions under Sub-Clause 8.8 [Suspension of Work] and/or from

resuming the work, the Contractor shall give notice to the Engineer and shall be entitled

subject to Sub-Clause 20.1 [Contractor’s Claims] to:




Further, this condition of contract pointed out that, the Contractor shall not be entitled to

an extension of time for, or to payment of the Cost incurred in, making good the

consequences of the Contractor’s faulty design, workmanship or materials, or of the

Contractor’s failure to protect, store or secure in accordance with Sub-Clause 8.8

[Suspension of Work].

M. Payment for Plant and Materials in Event of Suspension

109

Clause 8.10 stated the Contractor shall be entitled to payment of the value (as at the date

of suspension) of Plant and/or Materials which have not been delivered to Site, if:

a) The work on Plant or delivery of Plant and/or Materials has been suspended for more

than 28 days, and

b) The Contractor has marked the Plant and/or Materials as the Employer’s property in

accordance with the Engineer’s instructions.

N. Adjustments for Changes in Legislation

Under Clause 13.7 pointed out If the Contractor suffers (or will suffer) delay and/or incurs

(or will incur) additional Cost as a result of these changes in the Laws or in such

interpretations, made after the Base Date, the Contractor shall give notice to the Engineer

and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:




This contract condition further pointed out that, notwithstanding the foregoing, the

Contractor shall not be entitled to an extension of time if the relevant delay has already

been taken into account in the determination of a previous extension of time and such Cost

shall not be separately paid if the same shall already have been taken into account…the

provisions of Sub-Clause 13.8 [Adjustments for Changes in Cost].

O. Delayed Payment

Clause 14.8 stated as, if the Contractor does not receive payment in accordance with Sub-

Clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges

compounded monthly on the amount unpaid during the period of delay. This period shall

be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment],

irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim

Payment Certificate is issued.

Unless otherwise stated in the Particular Conditions, these financing charges shall be

calculated at the annual rate of three percentage points above the discount rate of the

central bank in the country of the currency of payment, or if not available, the interbank

110

offered rate, and shall be paid in such currency. The Contractor shall be entitled to this

payment without formal notice or certification, and without prejudice to any other right or

remedy.

P. Contractor’s Entitlement to Suspend Work

Clause 16.1 mentioned if the Contractor suffers delay and/or incurs Cost as a result of

suspending work (or reducing the rate of work) in accordance with this Sub-Clause, the

Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause

20.1 [Contractor’s Claims] to:




Q. Consequences of Force Majeure

Under Clause 19.4 of these conditions of contract stated about consequences of force

majeure that, if the Contractor is prevented from performing its substantial obligations

under the Contract by Force Majeure of which notice has been given under Sub-Clause

19.2 [Notice of Force Majeure], and suffers delay and/or incurs Cost by reason of such

Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s

Claims] to:



b) If the event or circumstance is of the kind described in sub-paragraphs (i) to (iv) of

Sub-Clause 19.1 [Definition of Force Majeure] and, in the case of subparagraphs (ii) to

(iv), occurs in the Country, payment of any such Cost, including the costs of rectifying

or replacing the Works and/or Goods damaged or destroyed by Force Majeure, to the

extent they are not indemnified through the insurance policy referred to in Sub-Clause

18.2 [Insurance for Works and Contractor’s Equipment].

APPENDIX-3: CERTIFICATE OF PAYMENT OF LIQUIDATED

DAMAGE PAYMENT

112

APPENDIX-4: EXTENSION OF TIME CLAIMED AND APPROVED

DOCUMENTS

114

APPENDIX-5: QUSTIONNAIRE RESPONDENT’S RII VALUES OF RESPONSES

Factors Client Consultant Contractor Overall

1) Easy to Testify LD RII Rank RII Rank RII Rank RII Rank

The parties must intend to liquidate 0.42 2 0.73 1 0.56 3 0.57 3

The damages anticipated as a result of the contract breach (such as a

contractor’s delay must be uncertain in amount or difficult to prove)

0.42 2 0.68 2 0.65 1 0.58 2

The amount stipulated must be reasonable, that is to say, not greatly

disproportionate to the anticipated loss or injury (Estimates)

0.58 1 0.66 3 0.6 2 0.61 1

2) Alternatives to enhance the Enforcement of LD

Insurance against losses 0.92 1 0.73 2 0.63 2 0.76 1

Bonus clause for early completion 0.67 2 0.82 1 0.7 1 0.73 2

Suing the contractor for the damages suffered 0.58 3 0.68 3 0.61 3 0.63 3

Determination / Termination of contracts and retender 0.58 4 0.43 4 0.54 4 0.52 4

3) Possible Impacts of LD

Promote timely project completion 0.4 3 0.82 2 0.31 4 0.51 4

Reduce rampant unapproved delays of projects 0.6 2 0.71 3 0.6 3 0.64 3

115

Improve project performance with respect to time 0.73 1 0.87 1 0.71 1 0.77 1

Lead to intimidated and apprehension of building contractors

prior to entering into contract agreements

0.6 2 0.67 4 0.68 2 0.65 2

4) Difficulty Level in Estimating Prolongation Cost

Extended and Increased Site Costs (Site Overheads or

Preliminaries)

0.5 3 0.52 5 0.55 5 0.53 5

Head office overhead cost 0.75 1 0.59 3 0.54 6 0.63 1

Inefficiency/ Lost productivity cost 0.5 3 0.61 2 0.5 7 0.54 4

Financial Charges and Interest 0.58 2 0.68 1 0.62 3 0.63 1

Inflation 0.5 3 0.57 4 0.65 2 0.57 3

Loss of Profit/Opportunity cost 0.58 2 0.57 4 0.56 4 0.57 3

Claim Preparation Costs 0.5 3 0.57 4 0.67 1 0.58 2

5) Reasons for Project Delay that Could Justify EoT

Force majeure 0.83 1 0.57 3 0.58 5 0.66 3

Exceptionally inclement weather 0.67 3 0.48 4 0.69 2 0.62 5

Late instructions, drawings or level 0.75 2 0.82 1 0.8 1 0.79 1

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Delay in the supply of materials and goods by the employer 0.58 4 0.71 2 0.61 4 0.63 4

Testing and inspection 0.67 3 0.48 4 0.57 6 0.57 6

Delay in giving possession of site 0.67 3 0.68 3 0.65 3 0.67 2

6) Common Mistakes by the Contractor

Late or lack of notice from the contractor 0.83 1 0.71 2 0.67 2 0.74 1

Failure to recognize delay or failure to describe the cause of

delay

0.67 3 0.64 5 0.61 4 0.64 6

Failure to state the date when delay commenced and the

period of delay

0.58 4 0.71 2 0.59 5 0.63 7

Poor presentation of the application to show how the

progress of the work has been delayed

0.75 2 0.73 1 0.54 6 0.67 5

Lack of proper baseline schedule 0.75 2 0.68 4 0.68 1 0.71 4

Lack of proper site records and particulars relied upon 0.83 1 0.73 1 0.64 3 0.73 2

Insufficient quality of information (Information is not kept

and not updated)

0.75 2 0.71 2 0.68 1 0.72 3

117

APPENDIX-6: EXCELL CORRELATION COEFFICIENT BETWEEN RESPONDENTS

1 Client Consultant Contractor CL-CT CL-CR CT-CR rs (CL-CT) rs (CL-CR) rs (CT-CR)1 2 1 3 1 1 -1 1 -2 4

2 2 2 1 0 0 1 1 1 1

3 1 3 2 -2 4 -1 1 1 1

d Val. 5 3 6 -0.25 0.25 -0.5

21 1 2 2 -1 1 -1 1 0 0

2 2 1 1 1 1 1 1 0 0

3 3 3 3 0 0 0 0 0 0

4 4 4 4 0 0 0 0 0 0

d Val. 2 2 0 0.8 0.8 1

31 3 2 4 1 1 -1 1 -2 4

2 2 3 3 -1 1 -1 1 0 0

3 1 1 1 0 0 0 0 0 0

4 2 4 2 -2 4 0 0 2 4

d Val. 6 2 8 0.4 0.8 0.2

41 3 5 5 -2 4 -2 4 0 0

2 1 3 6 -2 4 -5 25 -3 9

3 3 2 7 1 1 -4 16 -5 25

4 2 1 3 1 1 -1 1 -2 4

5 3 4 2 -1 1 1 1 2 4

6 2 4 4 -2 4 -2 4 0 0

7 3 4 1 -1 1 2 4 3 9

d Val. 16 55 51 0.89 0.02 0.09

51 1 3 5 -2 4 -4 16 -2 4

2 3 4 2 -1 1 1 1 2 4

3 2 1 1 1 1 1 1 0 0

4 4 2 4 2 4 0 0 -2 4

5 3 4 6 -1 1 -3 9 -2 4

6 3 3 3 0 0 0 0 0 0

d Val. 11 27 16 0.69 0.23 0.54

61 1 2 2 -1 1 -1 1 0 0

2 3 5 4 -2 4 -1 1 1 1

3 4 2 5 2 4 -1 1 -3 9

4 2 1 6 1 1 -4 16 -5 25

5 2 4 1 -2 4 1 1 3 9

6 1 1 3 0 0 -2 4 -2 4

7 2 2 1 0 0 1 1 1 1

d Val. 14 25 49 0.75 0.52 0.13

1) Easy to Testify LD rs (CL-CT) = A correlation coefficient b/n Client and Consultant

2) Alternatives to enhance the Enforcement of LD rs (CL-CR) = A correlation coefficient b/n Client and Contractor

3) Possible Impacts of LD rs (CT-CR) = A correlation coefficient b/n Consultant and Contractor

4) Difficulty Level in Estimating Prolongation Cost d Val= Is the summation of (d value)

5) Reasons for Project Delay that Could Justify EoT 6) Common Mistakes by the Contractor

118

APPENDIX-7: SAMPLE SIZE & TARGET POPULATIONS OF THE STUDY ON-GOING BDU

BUILDING PROJECTS

N

o

Project Name Project

Location,

Contractor Consultant Project Cost Commencement

Date

% of Work

Executed

No. of

Engineers

1 BIT Students dormitory Poly NASEW

construction Plc

BD Consult 180,412.072.57

Birr

10/4/2010 E.C 23.31 4

2 BIT Class Room Poly FE construction

Plc

BD Consult 193,951,403.85

Birr with vat

21/06/2010 E.C 65 5

3 EITEX LOTVII Textile FE construction

Plc

CDSCO 400,088,076.03

with vat

11/05/2009 E.C 78.79 6

4 Workshop & Laboratory Poly Flintstone

Engineering

BD Consult 479,428,282.78

Birr with vat

28/08/2010 E.C 20 5

5 PHD Student dormitory Poly Flintstone

Engineering

CDSCO 252,208,788.87

with vat

13/10/2010 E.C 23 5

6 EITEX LOT III Textile GAD

Construction

CDSCO 219,628,491.79

Birr

27/2/2007 E.C 69 5

7 Lot-VI Assembly hall,

administration andLounge

Textile Berhan Tobiaw CDSCO 190,314,545.35

Birr

70 7

8 Medical Faculty lot 4 Sebatamit Tekeleberhan

Ambaye

BD Consult 275,769,826.06

Birr

19/04/2008 E.C 76.19 5

9 Medical Faculty lot 3

library and cafeteria

Sebatamit Yencomad

construction Plc

BD Consult 505,329,756.55

Birr

17/07/2006 E.C 95 3

10 Medical Faculty lot 3 Sebatamit SATCON BD Consult 500,185.864.03 27/07/2009 E.C 66.54 4

11

11) Bahir Dar University Coordinating Office of Physical Projects Engineers 5

12 To Total Population of Engineers Working in BDU Physical projects 54

2020 practice and implementation of prolongation cost

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