- Business Corner -

Prolongation costs - a practical approachby Brian E Rawling

During the course of a recent dispute in which the writer wasinvolved, the employer's representative reduced the valuation ofthe contractor's daily prolongation costs on the basis that, whenone activity was delayed, the site staff working on other activitieswhich were not delayed could have continued with their tasksunaffected by the delayed activity.

Hence, even for a delay on the critical path which prolongedthe directly impacted activity and construction of the whole of theworks, the employer's representative maintained that the measureof the contractor's direct loss and/or expense was not related tothe time of all of the site staff on site during the period of criticaldelay, but only the staff which were directly affected by thedelaying event. In effect, the employer's representative maintainedthat from 30% to 50% of the site staff could have continued withtheir tasks unaffected by the critically delayed activity and shouldhave been excluded from the ascertainment of direct loss and/orexpense.

The project was for the construction of a medium-riseeducational facility with a reinforced concrete structure and typicalM&E installations and architectural works.

The employer's representative also maintained that thecontractor should have maintained records of what its staff did ona day-to-day basis so that the effects of the event on thefunctioning of the site staff could be identified. However, thecontractor had not maintained this type of record (which,incidentally, the writer strongly recommends a contractor/sub-contractor to do when it has a contract or sub-contact which islikely to be delayed and disrupted) and could not, therefore, proveits claim in the way that the employer's representative maintainedthat it ought to have been able to.

The contractor was left in a predicament where it disagreedwith the employer's representative but did not have the recordsto prove its case that all of the time related to site staff resourcesduring the critical delay should be included in the ascertainmentof direct loss and/or expense.

In response to the employer's representative's contentions,the following philosophy was developed to persuade theemployer's representative that he was wrong when contendingthat 30% to 50% of the time related site staff resources wereunaffected by the delaying events,

Knock -on effectsIn Figure 1, the construction of the medium-rise building is

represented by three activity bars. Construction of the reinforcedconcrete structure includes cast-in conduits, so M&E installationshad to start at the same time as the concrete works. Completionof the M&E installation is timed to coincide with completion ofthe architectural works due to the interfaces between finishingsand final fix M&E installations.

Fiure 1 Comme-n}cpem^emConcrete works

M&E installations

Architectural works

ContractCompletion

At a certain point, progress of the concrete works was impactedby the effects of an excusable event which caused a period ofunrecoverable delay to work on the critical path, the excusableand compensable event being the redesign of the floor plate layoutfor the upper half of the building. Upon receipt of the architect'sinstruction the contractor had to assimilate the changes beinginstructed before it could proceed to implement them.

The initial effect of the excusable and compensable event uponprogress of the concrete works was a period of near totalsuspension. In this situation, the contractor became entitled toreimbursement of the direct loss and/or expense or damagescaused by the progress of the concrete works being delayed.

The secondary effects of the excusable and compensable eventwere a prolongation of the concrete work activities and delay tocompletion of the concrete works. In turn, this caused similarperiods of prolongation and knock-on delays to completion of follow-on activities and completion of the building.

In this situation, the contractor was entitled to an extension oftime equal to the period of projected delay to completion causedby the excusable and compensable event which initially affectedthe concrete works and then caused knock-on effects upon follow-on activities. This is shown in Figure 2.

Progress of the M&E installations would not be delayed inexactly the same way (except cast-in conduits) as the concreteworks were delayed, although the M&E installations would, withtime, become increasingly delayed as the delay to the concreteworks continued and impacted upon the progress of follow-ontrades. Redesign of the concrete works would require redesign ofthe M&E installation, re-coordination and revised CSDs, CBWDsand the like. There may even be revised or additional procurement.

Once construction of the concrete works resumed, M&Einstallations could follow but progress would continue to berestrained until the availability of completed concrete works reached

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ENGINEER April 2004 11

--^ Business Corner v-

the previously intended level of lag between completed concreteworks and access for M&E installations.

Similarly, progress of the architectural works which laggedbehind progress of both the concrete works and the M&Einstallations would eventually and inevitably become delayed bythe knock-on effects of the delays to the concrete works. Progresswould be restrained until the availability of completed concreteworks reached the previously intended level of lag betweencompleted concrete works and access for architectural workswhich would also have to be re-coordinated with the delayed M&Einstallations due to the interfaces between these elements.

In Figure 3, the coloured parts of the bars represent utilisationof the contractor's resources, whilst the grey areas represent theunder-utilisation of resources, re-coordination, re-sequencing andthe other impacts of the delaying events. Therefore, the grey areasrepresent the extent of the contractor's losses and, therefore, theamount of reimbursable direct loss and/or expense.

Fwure 3 The extent of aired Ion and / of expense

area n

area n

The zone of influence shown in Figure 3 represents the extentthat the initial delay to the concrete works impacted upon theprogress of follow-on trades through successor activities andconstruction logic. The additional cost incurred by the contractorhas to be fairly ascertained. In addition to delays and disruption toconstruction activities and construction resources, there weredelays and disruption to time-related overhead resources such assite staff, plant, utilities and other site facilities. As a general guide,the cost of all time-related overhead resources during the periodof delay to the concrete works is a reasonable measure of directloss and/or expense on this type of project.

It is not common practice for contractors to keep detailedrecords of the work which their staff performs. In situations likethe scenario in Figure 3, the tasks of re-coordination, redesign, re-planning, re-sequencing and delays to procurement would involvemost site staff. However, without adequate records, that cannotbe proven.

In the absence of adequate records, it would be reasonable toascertain direct loss and/or expense by assessing the average dailycost of all time-related site staff and other time-related resourcesinvolved with the project at the time of the delay to the concreteworks and multiply this average daily cost by the period of delay.Any knock-on effects which occurred at a later date could beincluded in the ascertainment when they could be identified.

ConclusionWhen a contractor is delayed and disrupted, it should keep

records of the work carried out by its staff on a day-by-day basis.

Computerised proforma type records can be prepared for the sitestaff to fill in to show, for each day, the time spent on:1. the original contract work;2. researching ambiguities, seeking and implementing

clarifications;3. processing, assimilating and implementing changes ordered

by architect's instructions;4. re-coordinating and re-sequencing work affected by variations;5. the effects of late instructions, clarifications and the like;6. additional procurement (sub-contractors and suppliers);7. any other extra work generated by a compensable event.

The additional staff time in maintaining such records(estimated at no more than 15 minutes per day per person) istime well spent.

During the arbitration hearing for the dispute referred to inthe first paragraph, the employer's representative acknowledgedthat he had not fully considered the scenario in Figure 3. Nowthe arbitrator's award is awaited to confirm the merits of thecontractor's contentions. O

About the author: Brian E Rawling is the principal of thecommercial and contractual consultancy Brian E Rawling &Associates. He can be contacted at info@brianerawling.com.

1 t 1 I 1tAFundamental breach . A breach of contract usually givesthe injured party the right to claim damages. The purpose ofdamages for breach of contract is compensatory; that is, toput the injured party in the same position he would have beenin had the contract been properly performed. However, certainbreaches of contract such as breach of a fundamental term orcondition may be so serious as capable of bringing the contractto an end by allowing the injured party to rescind or terminatethe contract. A fundamental breach is said to arise if the breachcomplained of goes to the root of the contract such that ittotally destroys the purpose of the contract or makesperformance fundamentally different to that originally intended.On a construction contract a fundamental breach might ariseif the contractor or subcontractor packs up and abandons thesite and works. Equally, the employer/promoter who at therelevant time is unable to give possession or access to thesite or announces he has no finance for the project may commita fundamental breach. The parties to the contract canhowever, and frequently do, provide contractual mechanismsin the event of specified breaches addressing theconsequences of those breaches. Typical provisions includeagreeing the payment of liquidated damages for delay on thepart of the contractor/subcontractor or alternatively entitlementto an extension of time for delay on the part of the employer.The parties can also agree that certain contract terms are tobe treated as fundamental terms entitling the other party totreat the contract as at an end if such terms are breached.Law A-Z is provided by Ir Kevin Corbett, a senior associate of Masonsand chartered civil and structural engineer. He can be reached atkevin.corbett@masons.com.

12 ENGINEER Apra 2004

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