Prolongation costs in construction disputes

They include claims for the cost of time related resources, known as preliminaries, such as site management, site accommodation and key items of plant and machinery. They may also include subcontractor prolongation claims.

Prolongation costs are frequently claimed as part of wider 'loss and expense' claims comprising other heads of claim such as disruption, increased costs, interest/finance charges and overhead and profit claims.

How to succeed

To succeed in a claim for recovery of prolongation costs, it is necessary to establish that:

• a delay event has occurred for which the Employer is contractually responsible, such as one of the defined ‘relevant matters’ under JCT contracts or a ‘compensation event’ under NEC contracts;
• costs have been incurred; and
• those costs have been incurred as a consequence of the delay event.

A common misconception is that the award of an extension of time and associated relief from liquidated damages automatically gives rise to recovery of prolongation costs. That is not usually the case. For example, in respect of concurrent delays, whilst the contractor may be entitled to an extension of time, it may not be able to recover prolongation costs, because of its own delays.

Ways to maximise recovery

Contractors can maximise their prospects of recovery by taking the following matters into consideration:

• claiming the actual costs incurred rather than, for example, an average weekly rate derived from the preliminaries figure included in the contract sum. Successful prolongation claims are usually based on actual costs;
• claiming the actual costs incurred during the period when the delay event occurred rather than the period of project overrun;
• serving notices – most contracts require formal notices for events which have a potential to impact time or cost, and that requirement may be a condition precedent. Notices should be issued to safeguard the contractual position irrespective of any parallel commercial discussions. Early engagement in respect of events which have the potential to increase costs will give all parties the opportunity to take steps to mitigate those costs;
• effective programming – contractors often face criticism that their programme was never achievable and that a proportion of the prolongation costs are not therefore due to the employer delay. A detailed and realistic baseline programme is a good starting point. The programme should be updated regularly to reflect progress and to capture the impact of any change and other delay events. This will help to establish the critical causal link between a delay event and the prolongation costs that are claimed as a consequence; and
• keeping adequate records – contractors should ensure that records, such as site diaries, photographs, timesheets, and allocation sheets, are kept as to what people are doing and when. Similarly, the supply chain should be required to maintain the same records so as to avoid issues with recovery of unsubstantiated subcontractor claims from the employer. The importance of consistent and detailed record keeping cannot be overstated – cases are often won or lost on the quality of the records.

Poorly substantiated prolongation claims based on theoretical, rather than actual, costs are common. By taking the above steps, contractors can protect their contractual position and maximise their prospects of recovery.