We Have Used the Contract Preliminaries Amount to Price Our Prolongation Claim!
More too often projects overrun and suffer delay. Contractors are then required to quantify the financial implications of this delay and pursue their reimbursement of prolongation costs from their client.
Often in the construction disputes that we work on, we are faced with the situation where the contractor’s prolongation claims have been calculated using the contract preliminaries rates. For example, if the contract preliminaries was £52,000 for 52 weeks, the prolongation claim for the period of delay, is calculated using £1,000 per week.
Whilst in certain circumstances, it may be by agreement and acceptable to both parties to take this approach, our advice and experience is that this approach is fraught with danger and does not correlate with most, if not all, contracts that we work with.
The courts have held on numerous occasions that in loss and expense or additional cost claims, the contractor is entitled to recover costs that arise naturally and in the ordinary course of things from the breach of contract, that being for example late information, access or decisions from the client. The contractor is entitled to be put back in the position, as if the breach had not happened.
The forms of contract use the terms “expense”, “cost” or “loss”; all of these terms are defined as involving some actual form of expenditure i.e. you have paid some money out and you can prove it!
Therefore, the contractor’s task is simple – to prove the damage that you have suffered due to the delay. This is a matter of fact, not by reference to an estimate produced some months earlier at bid stage.
Whilst the contract preliminaries rates will include estimated costs for site establishment, management, supervision, overheads, profit and equipment that were anticipated to be required on site for certain durations and may well have been affected by the overrun. This is not factual and does not reflect what was actually incurred due to the overrun.
Our advice is simple, go pester the accountant, analyse the SAP or other cost reports and ascertain the actual additional costs incurred as a consequence of the overrun.