Extension of time claims(EOT claims) are the most discussed type of claims in the construction industry, the Main intention of this article is to give you a better understanding of EOT claims. Before we move into further details on the extension of time claims we will look into the nature of the extension of time claims.
In the construction industry, It is inevitable to avoid delays. It is tough to find a project which was not affected due to any delay event. Hence, EOT claims play a significant part of the industry. Whenever a contractor raises an EOT claim, that will lead to a conflict between contractor and client. In most of the cases, clients will not agree with the claim amount that the contractor is claiming. Most contractors say that clients are intentionally avoiding or cutting claims raised by them.
But most industry experts indicate that contractors are letting clients cut their claims by submitting incompetent submissions. Indeed, clients cannot avoid or unreasonably reduce properly filed EOT claim with relevant data and correspondences. This is a universal truth for any construction claim. Apart from the EOT claims; There are a few types (categories) of claims in the construction industry. They are(including the EOT claims),
- Prolongation claims.
- Acceleration claims.
- Disruption claims.
- Damage claims (mostly raised by clients & other parties).
- Extension of time claims.
- Variations or change order claims.
Mostly, Preparation of Extension of time claims is a usual responsibility of a Quantity surveyor. In this article, we give you a quick guide about the Extension of time claims (EOT claims). In contrast, EOT claims consists below mentioned vital components,
- Delay analysis
- Calculations and evidence for time-related costs such as site office cost, site overheads, Head office overheads and renewal charges of bonds and guarantees.
- Relevant communications and correspondences.
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.
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.
Delay analysis is vital for the preparation of EOT claims. Delay analysis shows exact delay occurred due to delay event. Furthermore, Analysis help contractor to compare the original timeline and deviated timeline and calculate the number of days delayed due to delay event (or events). And delay analysis is the methodical way to present and report delays.
Main Delay analysis methods for Extension of time claims
Most importantly, there should be an agreed project program before commencing a project. Once a delay event occurs, the contractor should revise the project program accordingly. Basically, delay analysis methods are the ways of comparing and presenting these deviated project program and initial project program. 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,
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 we can 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).
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 ($)||Months||Nr||Total ($)|
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 ($)||Months||Nr||Total ($)|
In such cases, the contractor can claim an EOT claim. (Unless the root of the delay event is not related to the contractor)
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)
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
Below we have given you a sample letter for requesting a extension of time.
EOT Request Letter
[Date] Attention [ Receiver name/designation]
Project [Name/ detail]
Subject- Request for extension of time
Refer to the project mentioned above; We enclose herewith our [interim/ Final] extension of time submission for your kind review and approval. The delaying events identified herein are concerned with excusable and compensable delays arising out of the actions of “others” in relation to the delays associated with [contractor’s name]. Especially we have been delayed in the following areas and ways,
- [Detail of delay event 1]
- [Detail of delay event 2]
All relevant documents, communications related to this request is attached along with this submittal. If you need more clarifications, please do not hesitate to contact us.
[Name and designation]
This is just a sample, Letter should be prepared and submit according to your (project’s) contract.
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 to this link. Finally, we request you to follow our blog and also please put a comment below.