Preparation of Extension of time claims is usual responsibility of a Quantity surveyor. There are three types (categories) of claims in the construction industry including the EOT claims. They are,
- Prolongation claims (Extension of time Claims)
- Acceleration claims
- Disruption claims
In this article, we give you a quick guide about prolongation claims or extension of time claims (EOT claims).
Delays are common in the construction industry. In our previous article, we have categorised and discussed possible reasons for project delays. Always these delays can affect the contractor’s cash flow, mainly time-related costs can be increased along with the extended timeline of the project.
What are time-related costs for Extension of time claims?
Mainly preliminary costs are estimated based on the project time frame. As an example- A project was planned to complete within six months. So the value of the site management (supervision) team was calculated as below,
|Personal||Monthly salary ($)||Nr of months||Nr||Total ($)|
As shown above, all supervised personal cost is 348,000 and calculated for 06 months. But some actions of the client caused a delay in the timeline. The completion date rescheduled due to this delay, and the client has extended the project program by another 02 months. Now Complete time frame of the project is (06+02) = 08 months. Additional cost occurred due to this change is 106,000 (see below chart 02).
|Personal||Monthly salary ($)||Nr of months||Nr||Total ($)|
In such cases, the contractor can claim an EOT claim. (Unless the root of the delay event is not related to the contractor)
Before we moved to EOT claims, Below are the three main reasons or cause for the project delays. (all the reasons can be divided in to below categories)
Three types of delay events
- Delays caused by the contractor
- Delays prompted by the client or his consultants
- External delays which not expected and uncontrollable
Read our previous article, which we discussed more details about the above three categories.
To claim an EOT, claim contractor should identify and calculate exact time impacted due to delay events. So There are few delay analysis methods used in the construction industry to calculate and present the precise impact of the delay events. Main analysis methods are as follows,
Main Delay analysis methods for Extension of time claims
In this method, delays are identity and insert those delays into the planned schedule. And the revised project plan is showing the impact of these delays. (See below graph)
This method is the reversal method of the impact as planned method. The as-built program was created including the delay events and after those delay events are removed from the as-built program and shows the effects of the delay events. (See below graph)
As-Planned vs As-Built
This method requires both the planned schedule and as-built program to identify the delay. Delays are identified comparing the as-built program with the scheduled program.
Apart from the above popular delay analysis methods, there are a few more methods used by the contractors,
- Time Slice Windows Analysis
- Time Impact Analysis
- Longest Path Analysis
Below are the costs that contractors can claim under EOT claim or prolongation claim.
What to claim under Extension of time claims,
Site office costs
Under site office cost, we have several direct expenditures. Such as office cabin rentals, Utility bills, Stationeries etc. Apart from these direct costs, the contractor can claim depreciation costs of the computers, printers, Scanners and tools used by the site management staff.
All salaries and costs of the site management team can be claimed under site overhead (As we have shown in the above chart no 02 value of extra wages). Apart from salaries, the contractor can claim additional overtime paid for an extended period. Also, the contractor entitled to claim leave provisions, Annual flight allowances, end of service benefits of the site management team as per the extended time frame.
Head Office overheads
Head office overheads are the management and admin costs of running the head office of the contractor. Expenses such as office rent, administration, estimation and account department’s salaries etc. Head office overheads are slightly challenging to claim under EOT claim. Because it is difficult to prove and present head office overhead costs. Hence few experts have introduced few formulas to calculate and present head office overhead (impacted due to delay events).
This is the most popular formula used by the contractors to calculate and present the head office overheads caused by the delay events. Hudson formula is used to calculate the contractor’s allocated overhead (as per the tender) for the original time frame of the project and damage due to the delay event.
(Head Office overheads + profit) ÷ 100 x contract sum ÷ period in (days) x delay in (days)
This formula also similar to above (Hudson Formula) Formula but it allows to calculate head office overhead from the audited accounts.
(Overheads & profit / 100) x (contract sum x period of delay / contract period)
*** In Hudson formula—- Overhead calculated as per tender
*** In Emden Formula—- Overhead derived from actual (audited accounts)
Finance & insurance-related costs
Bond renewal charges
The contractor can claim the costs of extending the performance bond and other insurance as per the delay events. If a project is delayed by 2 months, the contractor has to extend their performance bond by 2 months. And normally performance bond is 10% of the contract value, prevailing 0.25% per annum. So the cost of the renewing performance bond can be derived from below formula,
Bond renewal charge = (Bond value x 0.25%/ x Days extended)/ 365
The delayed release of retention
Apart from these renewal charges, the contractor can claim an interest in the delayed release of retention. Retentions are standard practice in the construction industry. 10% is the maximum value (from contract value) client is entitled to hold as retention. And 5% of it will be released after the completion of the project. And balance 5% is released after the end of the defect liability period. Delays in the project completion will delay the release of this retention amount. Therefore the contractor can claim loss interest value of the retention amount.
Interest = Bank interest % (per annum) X (days delayed/365) X Retention amount
To claim a successful EOT claim contractor should do proper delay analysis, and they should know precisely what they are eligible to claim. We hope the above article and calculators will help you to understand more about EOT claims. for more inputs please refer this link. Finally, we request you to follow our blog and also please put a comment below.