54988952 38555168 Extension of Time Claim Procedure[1]

EOT and Loss and Expense Claim Mr Tse Sek Chuen Director Widnell Ltd

A)

Extension of Time Claim

1)

General

a)

In the absence of express Contractual power to extend the time for completion, the Architect could not do so.

b)

Failure by the Architect to properly exercise the power to extend time will relieve the Contractor from his liability to pay liquidated damages and the time for completion may become ‘at large’.

A)

Extension of Time Claim

1)

General

a)

In the absence of express Contractual power to extend the time for completion, the Architect could not do so.

b)

Failure by the Architect to properly exercise the power to extend time will relieve the Contractor from his liability to pay liquidated damages and the time for completion may become ‘at large’.

A)

Extension of Time Claim (Cont’d)

c)

Assessed at the time when the Works are actually carried out and not when they were programmed to be carried out.

A)


d)

E.O.T. clause is put into the Contract to cater for the delay caused by:1)

Employer or the Architect Without E.O.T. Clause, the completion of works delayed by the Employer/Architect will also relieve the Contractor from his liability to pay liquidated damages and the time for completion may become at large.

A)


d)

(Cont’d)

2)

Neither party of the Contract i)

As a fair sharing of the risk between the parties.

ii)

Under those events caused by neither party which are expressly provided in the Contract, the Contractor is entitled to E.O.T. only. No monetary compensation will be paid to the

A) d)

Extension of Time Claim (Cont’d) (Cont’d) iii)

Under those events caused by neither party which are expressly excluded from the Contract, the Contractor is to take up the risk, no E.O.T. will be granted.

A)


e)

Under no circumstances will the Contractor be entitled to receive financial compensation for the delay caused by the Contractor himself.

A)

2)


Time at large a)

Where no time for completion is specified, time is said to be ‘at large’ and a term for completion within a reasonable time will be implied.

b)

Where the time fixed by the Contract for completion has ceased to be applicable and the Contractor is continuing to work under the Contract.

A)

Extension of Time Claim (Cont’d) c)

If a Contractor is delayed by the Employer where the conditions of contract make no proper provision for extending the completion date for this type of delay.

d)

Where time is at large the Contractor/ subcontractor’s obligation is to finish within a reasonable time.

e)

LD will become inapplicable.

A) 3)

Extension of Time Claim (Cont’d) Major obstacles to EOT claim a)

Late or lack of notice from the Contractor.

b)

Failure to recognise delay that results in contemporary records not being kept.

c)

Failure to regularly update the programme.

A)


d)

Poor presentation of the claim to show how the progress of the work has been delayed.

e)

Insistence on the part of the Employer’s professional advisers, that unreasonably detailed critical path programmes are essential in order to assess the effects of the delay.

A) 4)

Extension of Time Claim (Cont’d) Events Qualifying For Extension of Time a)

RICS (HK Branch) 1986 Edition i)

Clause 23 (a)

Force majeure.

(b)

Inclement weather (rainfall in excess of 20 mm in a 24 hours period) and typhoon signal No. 8 or above.

A) i)

Extension of Time Claim (Cont’d) Clause 23 (Cont’d) (c)

Fire, storm, tempest.

(d)

Civil commotion, local combination of workmen, strike or lockout.

(e)

Architect’s instructions issued :i)

discrepancies in contract documents

ii)

variations

A) i)

Extension of Time Claim (Cont’d) Clause 23 (Cont’d) (f)

Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect for which he specifically applied in writing.

(g)

Delay on the part of nominated subcontractors or nominated suppliers which the Main Contractor has taken all practicable steps to avoid or reduce.

A) i)

Extension of Time Claim (Cont’d) Clause 23 (Cont’d) (h)

Delay on the part of artists, tradesmen or others engaged by the Employer.

(i)

Opening up for inspection of any work covered up or of the testing of any of the work, materials or goods.

A) i)

Extension of Time Claim (Cont’d) Clause 23 (Cont’d) (j)

Unforeseen shortage of labour.

(k)

Unforeseen shortage of materials.

(l)

Discovery of antiquities.

A) b)

Extension of Time Claim (Cont’d) Hong Kong Government Form 1993 Edition i)

Clause 50(1)(b) a.

Inclement weather conditions and/or its consequences adversely affecting the progress of the Works.

b.

The hoisting of tropical cyclone warning signal No. 8 or above.

A)


i)

Clause 50(1)(b) (Cont’d) c.

An instruction issued by the Architect concerning discrepancies in contract documents.

d.

Variations

e.

A substantial increase in quantities of any item of work not resulting from any error in firm quantities or from a variation ordered under Clause 60.

A)


i)

Clause 50(1)(b) (Cont’d) f.

The Contractor not being given possession of the Site or any portion or part thereof in accordance with the Contract.

g.

A disturbance to the progress of the Works for which the Employer or the Architect or a Specialist Contractor is responsible.

A)


i)

Clause 50(1)(b) (Cont’d) h.

Suspension of the Works, except due to weather, Contractor’s default or as provided for in the Contract.

i.

Any utility, undertaking or other duly constituted authority failing to commence or to carry out in due time work directly affecting the execution of the Works.

A)


i)

Clause 50(1)(b) (Cont’d) j.

Delay on the part of any nominated sub-contractor, which would entitle the Main Contractor to an extension of time.

k.

Any special circumstance of any kind whatsoever.

A)


ii)

Clause 50(1)(c) The Contractor shall not be entitled to an extension of time for the following :a)

Shortage of Construction Plant or labour.

b)

Suspension of the Works i)

Provided for in the Contract.

A)


ii)

Clause 50(1)(c) (Cont’d) b)

Suspension of the Works (Cont’d) ii)

By reason of weather condition affecting the safety or quality of the Works.

iii)

By reason of some default on the part of the Contractor.

A)


ii)

Clause 50(1)(c) (Cont’d) b)

Suspension of the Works (Cont’d) iv)

For the proper execution of the Works or for the safety of the Works not arising from any act or default of the Architect/Employer.

A)


5)

Notice Requirements for EOT Some notice requirements are condition precedent to the Contractor’s entitlement and therefore the Contractor loses his right to claim if he fails to comply with such a notice requirement.

A)


a)

RICS HK Branch 1986 Edition i)

Clause 23 Upon it becoming reasonably apparent that the progress of the works is delayed, the Main Contractor shall forthwith give written notice of the cause of the delay to the Architect.

A)


b)

Hong Kong Government Form (1993 Edition) i)

Clause 50(1)(a) As soon as practicable but in any event with within in 42 days days of the the cause cause of any any delay to the progress of the works becoming apparent, the Contractor shall give notice in writing to the Architect of the cause and probable extent of the delay.

A)

i)


Clause 50(1)(a) (Cont’d) Any order or instruction issued by the Architect is likely to cause a delay to the progress of the works, the Contractor shall forthwith give notice in writing to the Architect and specify the probable effect and extent of such delay.

A)

6)


Presentation of EOT Claim a)

Description of the cause delay.

b)

The contractual provision which is being relied upon.

c)

The date when the delay commenced and the period of delay.

d)

The date of notice of delay.

A)


e)

A summary of records and particulars relied upon.

f)

A description of the event and effects on progress.

g)

A diagrammatic illustration showing the status of the programme, progress and current completion date prior to the commencement of the delay.

A)


7)

Programme a.

Effective and realistic programme

b.

Delay has affected completion of the Works

c.

Flow time included in the programme

B)

Loss and/or Expenses Claim

1)

Events Giving Rise to a Monetary Claim

a)

RICS (HK Branch) 1986 Edition

i)

Clause 11(6) a)

Direct loss and expense arising from Architect’s variations and expenditure of provisional sums for which the Contractor would not be reimbursed by payment in respect of valuation of variation, both subject to written notice.

B) ii)

Loss and/or Expenses Claim (Cont’d) Clause 24(1) Direct loss and expense arising from: a)

Not having received in due time necessary instructions, drawings, details or levels from the Architect for which the Contractor specifically applied in writing;

B) ii)

Loss and/or Expenses Claim (Cont’d) Clause 24(1) (Cont’d) b)

Opening up work for testing;

c)

Discrepancy or divergence between contract drawings or contract bills;

d)

Delay by artists and tradesmen or other engaged by the Employer in executing work not forming part of this contract;

B) ii)

Loss and/or Expenses Claim (Cont’d) Clause 24(1) (Cont’d) e)

iii)

Architect’s instructions regarding postponement

Clause 34(3) a)

Direct loss and expense arising from the discovery of antiquities

B) b)

Loss and/or Expenses Claim (Cont’d) Hong Kong Government Form 1993 Edition i)

Definition of ‘Cost’ Clause 1 : “….. expenditure reasonably incurred including overheads whether on or off the site and depreciation in value of Construction Plant owned by the Contractor but excluding profit.” The following clauses provide an express entitlement to the recovery of additional cost.

B)

ii)

Loss and/or Expenses Claim (Cont’d)

Clause 5(b) Compliance with instructions concerning discrepancies between documents

iii)

Clause 34(2) Provision of facilities for other Contractor working adjacent to the site as the Surveyor considers reasonable.

B) iv)

Loss and/or Expenses Claim (Cont’d) Clause 48(2) Due to progress of the Works being affected by failure to give possession of site as are necessary for the Contractor to carry out the Works.

v)

Clause 54(2) Due to suspension of the Works under Architect’s Instructions subject to certain listed exceptions.

B) vi)

Loss and/or Expenses Claim (Cont’d) Clause 63 Due to progress being materially affected by:(a)

Late information

(b)

Variations issued in Clause 60

(c)

Opening up for inspection etc (unless provided for in contract or unless inspection reveals a non compliance).

B) vi)

Loss and/or Expenses Claim (Cont’d) Clause 63 (Cont’d) (d)

The work or supply of others (except utilities) engaged by the Employer which are directly connected with the Works though not forming a part of it.

(e)

Late delivery of materials, plant or equipment by the Employer.

B) vi)

Loss and/or Expenses Claim (Cont’d) Clause 63 (Cont’d) It should be noted that the rules for evaluating variations (Clause 61) contain some flexibility in that rates may be enhanced to cover the material affect on progress. This should be considered as a convenient alternative to a claim under Clause 63(b), particularly when the effect is disruption to progress, rather than a prolongation of the Works as a whole.

B)

vii)


Clause 66 Additional expenditure incurred by the Contractor as a result of being instructed to engage a NSC on conditions other than the standard form of sub-contract.

B) 2)

Loss and/or Expenses Claim (Cont’d) Notice Requirements for Loss & Expense Claim i)

General a)

Some notice requirements are condition precedent to the Contractor’s entitlement and therefore the Contractor loses his right to claim if he fails to comply with such a notice requirement.

B)


b)

Failure to give notice in accordance with the contract may bar or severely prejudice a claim for additional payment

c)

Specific notice provisions are inserted the Contractor must comply with these requirements

B)


d)

Advance warning as possible of the possibility of an increase in the contract price

e)

Under a duty of care to the Employer in giving an estimate of the cost of an intended building

f)

Enable the Architect/Engineer/Surveyor to make assessment

B)


ii)

RICS HK Branch 1986 Edition a)

Clause 11(6), Clause 24(1) Upon written application being made to the Architect, the Architect is of the opinion that the Main Contractor has incurred the loss and/or expense for which he would not be reimbursed by payment in respect of valuation of variation / made under any other provision in the Contract.

B) iii)

Loss and/or Expenses Claim (Cont’d) Government of the Hong Kong SAR (1993 Edition) a)

Clause 64(1) Contractor shall give written notice of his intention to claim a higher rate within 28 days of Surveyor’s notification of the rate.

B) b)

Loss and/or Expenses Claim (Cont’d) Clause 64(2) Contractor shall give written notice of his intention to claim any additional payment within 28 days of the event giving rise to the claim.

c)

Clause 64(5) If the Contractor fails to comply with the notice provision contained in Clause 64(1) and 64(2), such claim shall not be considered.

B)


3)

Prolongation Claims Typical heads of claim arising out of prolongation of the contract period are: a)

Site overheads or preliminaries

b)

Head office overheads

c)

Loss of profit

B)


d)

Cost escalations

e)

Cost claims from subcontractors

f)

Depreciation on assets

g)

Financing charges

h)

Delayed release of retention

i)

Adjustment of levies

B) 4)

Loss and/or Expenses Claim (Cont’d) Site overheads a)

Actual Costs The extra site overhead costs due to prolongation are those incurred after the original contract completion date and up to the extended (or actual) completion date. Some may prefer the costs incurred during the actual period of delay.

B)


Documents/information to substantiate the actual costs incurred:i)

Staff -

Organization chart/site diary records showing the staff involved.

-

Staff salaries payroll records or contract of employment.

B)


ii)

Plant

iii)

-

Site and plant records showing the plant involved.

-

Plant hire purchase agreement/ contracts of plant purchase/plant costs depreciation record.

Insurance/Bond -

Premium receipts for the prolongation period.

B)


iv)

Security/Safety Services

v)

-

Security staff payroll records.

-

Payment receipt for contracted security services.

Site Facilities e.g. site office, toilet, store room, etc -

Actual cost records as appropriate.

B)


b)

Preliminaries BQ 1.

Time-related items

2.

Non-time-related items

3.

A price per day/week/month to apply to the prolonged period

B)


4.

Very simple means of establishing an additional payment for site overheads

5.

Not complying with the provisions of most standard forms of contract which require loss and expenses or costs to be paid

B) 5)

Loss and/or Expenses Claim (Cont’d) Head office overheads Components of head office overheads may be listed as follows:a.

Rent and rates of offices, plant and yards;

b.

Maintenance and running costs;

c.

Directors’ salaries and expenses;

B)


d.

Head office, technical salaries and ‘on costs’ (surveyors, planners, purchasers and the like);

e.

Head office administrative staff salaries and ’on costs’ (accountants, typists, messengers, cleaners, maintenance staff);

f.

Administrative expenses, such as postage, printing, stationery, telephones;

B)


g.

Traveling expenses, including the provision of motor cars for directors and staff;

h.

Legal and professional fees;

i.

Depreciation.

B) i)

Loss and/or Expenses Claim (Cont’d) The actual cost approach 1.

Cost of the actual head office overheads affected by the delay

2.

The difficulty arises in identifying the increased expenditure directly and indirectly arising from the delay on the project in question

B)


3.

Generate a timesheet, showing the time which they have spent on the project , compared with the time spent on the project during the earlier period of construction

4.

Other head office costs such as accounts, secretarial and clerical staff, rent, services, stationery, etc, effectively exist to support key staff

B)


A global claim ie: where a Contractor claims his total head office expenditure and deducts from that total the amount included in its tender. Documents/information shall be provided by the Contractor to substantiate the actual costs incurred:-

B)


-

Actual cost records, e.g. time sheet, contract of employment, etc.

-

Auditor’s account showing the detailed breakdown of administrative expenses covering the whole contract period.

B) ii)

Loss and/or Expenses Claim (Cont’d) The lost opportunity approach The lost opportunity approach uses a formula for its calculation, which is simple, cheap, quick and produces a reasonable sum of money for very little effort. There are three formulae commonly used for head office overhead calculations: the Hudson formula, the Emden formula and the Eichleay formula.

B)


a)

Hudson’s formula

Head Office Overhead Percentage 100

Contract Sum x

Contract Period

x

Note: The Head Office Overhead percentage in the Contract

Period of Delay

B)


The formula adopts the head office overhead percentage from the contract as the factor for calculating the costs. This may bear little or no relation to the actual head office costs of the Contractor and therefore Hudson’s formula is often criticized as unrealistic.

B)


b)

Emden’s formula

Head Office Overhead Percentage 100

Contract Sum x

Contract Period

x

Period of Delay

B)


Note: The HO/Profit percentage is head office percentage, arrived at by dividing the total overhead costs and profit of the Contractor’s organization as a whole by the total turnover. This formula has the advantage of using the Contractor’s actual head office/profit percentage rather than the one contained in the contract and has received judicial support in a number of cases.

B)

c) ie:


Eichleay formula Value of work during contract period Total value of work for the company as a whole during contract period

=

x

Total Head Office Overheads During contract period

Head Office Overheads Allocated to the Contract

B)


Head Office Overheads Allocated to the Contract Contract Period

= Amount Claimed

x

Period of Delay

B)


1.

Comparing the value of work carried out in the contract period for the project with the value of work carried out by the contractor as a whole for the contract period.

2.

A share of head office overheads can then be allocated in the same ratio and expressed as a lump sum to the particular contract.

B)


3.

The amount of head office overhead allocated to the particular contract is expressed as a weekly amount by dividing it by the contract period.

4.

The period of delay can then be multiplied by the weekly amount to give a total sum claimed.

B) 6)

Loss and/or Expenses Claim (Cont’d) Loss of profit a.

Some contractual provisions only provide for recovery of additional cost or expense, a claim for loss of profit is not permissible

B)

b.


The Contractor to show some evidence that he was given the opportunity to tender for other projects and that he could not reasonably take advantage of these opportunities because of the fact that his resources were retained on the delayed project

B)


c.

the Contractor would be advised to keep a record of the following:i)

All tenders submitted and awarded so that a success ratio can be established;

ii)

All projects for which the Contractor was invited to tender, but which were declined or a deliberately high tender submitted.

B)


If the Contractor can demonstrate that, on the balance of probability, he would have been able to obtain other contracts during the period of overrun, that alone ought to be sufficient to establish the claim in principle.

B)


7)

Cost escalations If the contract is fixed price there is no mechanism for adjusting the contract sum for fluctuations in prices of labour and materials

B)


Published indices, eg: “Index Numbers of the Costs of Labour and Selected Materials used in Government Contracts” by the Hong Kong Government Census and Statistics Department. Invoices and trade agreements to show actual price increases.

B)

8)


Cost claims from subcontractors Where the Contractor incurs liabilities under his subcontracts or supply contracts as a result of a event for which he is entitled to recover cost.

B)


9)

Depreciation on assets Where a montary claim arises from a substantial delay to the contract period, necessitating the Contractor’s plant and equipment to be held on site for much longer than planned, then the Contractor incurs a depreciation in the value of those assets. This loss would be recoverable.

B)


HK Government Form 1993 Edition clause 1(1) defines “cost” as including “depreciation in value of Construction Plant owned by the Contractor”. The calculation may be based on actual market values, if available, or representative values taken from accounting practice.

B) 10)

Loss and/or Expenses Claim (Cont’d) Financing charges a.

A debt which is paid late does not entitle the recipient to interest at common law

b.

The interest or finance charges are an integral part of the cost or loss and expense

B) c.

Loss and/or Expenses Claim (Cont’d) If the value of work increase, the additional financing ought to be recovered in the rates for variations

Documents/information shall be provided to substantiate his claim:i)

Documentary proof of overdraft facilities or money borrowing to finance the expense.

B)


ii)

Evidence of draw down of the overdraft facilities or money borrowing.

iii)

Borrowing ratio of the company.

B)


11)

Delayed release of retention A direct cost arising from the disruption to progress which the Contractor would usually be entitled to recover. The period by which the release of retention will be/has been delayed multiplied by the finance charges incurred.

B)

12)


Adjustment of levies The value of the contract increases as a result of the payment of additional sums against claims.

B) 13)

Loss and/or Expenses Claim (Cont’d) Disruption and loss of productivity claims a.

Works may be disrupted without a delay to the contract completion date.

b.

Establish that a planned orderly timing and sequence of events was affected by causes within the Employer’s control to the extent that the Contractor was prevented from carrying out the work in that planned orderly timing and sequence.

B)


c.

Many disruption claims fail because the Contractor is unable to show that the additional costs were caused as a result of matters for which the Employer/other party was responsible.

B)


d.

To compare actual productivity during a period of disruption with productivity during a period when no disruption was evident. This method does not take into account errors in the tender.

B)


e.

i)

Daily disruption schedules may be used: the record, for example.

ii)

Access to a particular area was not available to the specified time, or in the specified condition

iii)

Labour and plant left idle as a result for a recorded period of time

B)


e.

iv)

Or a site instruction received at a recorded time necessitated the transfer of noted resources, resulting in demobilization and remobilization.

B)


f.

The site diary could be better completed with relevant information.

g.

All such records must then be verified and signed by the supervision consultant as an accurate record.

B) 14)

Loss and/or Expenses Claim (Cont’d) Acceleration claims a.

An express term of the contract or a separate agreement

b.

The Contractor is not entitled to unilaterally decide to accelerate and expect the Employer to pay the acceleration cost.

B)


c.

The Contractor is required to demonstrate the cost of resources which would have been employed had no acceleration measures been taken.

B)


d.

The acceleration costs might consist of:i)

Deployment of additional plant, formwork

ii)

Deployment of additional workforce

iii)

Working overtime

iv)

Additional overhead and profit thereon

B) 15)

Loss and/or Expenses Claim (Cont’d) Quantum meriut a.

“the amount the Contractor deserves” or “what the job is worth”

b.

Payment on a quantum meriut may arise:-

B)


i)

Where there is no contract at all;

ii)

Where changes are made under a contract to a degree which renders the work carried out substantially different from that contracted.

B)

16)


Ex-gratia claims Claims which the Employer is under no contractual obligation to pay.

B)

17)


Common law claims Claims for damages for breach of contract at common law.

B)


18)

Adjustment for overheads and profit in variations Refer to wording of loss and expense clauses eg:

B)


a.

RICS (HK Branch) 1986 Edition clause 24:

“If … the Architect is of the opinion that the Main Contractor has been involved in direct loss and/or expense for which he would not be reimbursed by a payment made under any other provision in the Contract by reason of the regular progress of the Works … having been materially affect … then the Architect shall ascertain … the amount of such direct loss and expense.”

B)


b.

HK Government Form 1993 Edition clause 63:

“If … the Architect is of the opinion that the Contractor has been or is likely to be involved in expenditure for which the Contractor would not be reimbursed by a payment made under any other provision in the Contract by reason of the progress of the Works … having been materially affected … then the Architect shall ascertain the Cost incurred …”

B)


c.

A variation causes a delay to the contract period for which prolongation costs are paid then it is necessary to deduct from the prolongation costs the amount of profit and overheads included

d.

Only those variations causing the delay in question should be considered

B)


e.

Any variations which do not cause the delay or which is not the subject of the prolongation claim, should be ignored

B)


19 )

Time limits on recovery a.

Within six years of the cause for contracts under hand

b.

Within 12 years for contract under seal

B)

20)


The duty of mitigation a.

What steps the Contractor takes to mitigate the effects of the delay.

b.

What steps the Contractor takes to mitigate the losses.

The End

Thank You Mr Tse Sek Chuen Widnell Ltd www.widnell.com

54988952 38555168 Extension of Time Claim Procedure[1]

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