Project managment

Estimating delay costs

The cost which has to be evaluated due to delay to a contractor varies according  to whether or not the delay justifies an extension of the contract completion period. If the delay does not justify an extension of the completion period, then the basic delay costs comprise such matters as standing time, lost time, and ‘uneconomic working’ for labour and plant. These can occur when the contractor has to stop work waiting for instructions, re-organize his work to cope with unforeseen conditions, or having to move labour and plant onto some other work available or as directed by the engineer. The ‘lost time’ by men and machines can be identified and costed, on a similar basis to that set out in Section 17.9.

Some other costs may have to be added, such as continuing to keep an excavation dewatered, or prolonged use of timbering to keep an excavation open, hired plant having to be retained on site longer, etc. These delay costs are separate from and additional to the rates set to cover the work actually undertaken. The latter rates should allow for the further difficulties and costs encountered as the work proceeds, such as continued de-watering for example.
If a delay justifies extension of the contract completion period, or it extends a major activity, then clearly some of the site resources have to continue for that much longer. Hence site on-costs must be added (see Section 17.9). On large jobs with several sub-agents or teams of staff, each may have to be considered separately to identify the effect (if any), which a delay has had in keeping them on site. Head office on-costs may also need to be added, but these are often a source of much confusion in relation to extension of the contract period. Acontractor is not entitled to maintenance of a steady income from a site irrespective of what is actually happening at the time. An attempt should be made to identify any actual head office costs associated with an extension of the contract period using time sheets or other means; but if this proves impossible a general percentage addition which represents a reasonable proportion of head office costs to turnover costs can be added. Formulae such as Hudson or Emden may be proposed by contractors but it is important to recognize that these have no connection with any actual costs incurred.
It must be emphasized that it is the conditions of contract, which set out the delays for which payment of costs may be recovered by the contractor, and reference must always be made to them. The conditions will also generally define what is meant by ‘cost’, which usually excludes profit, although profit is deemed to be included in bill rates, which are often used for pricing variations.
The ICE conditions specifically allow for profit when unforeseen conditions have to be dealt with.
The ECC conditions do not define cost as such (other than as a valuing mechanism)
and may allow addition of profit to all price changes by means of the added fee. Both ICE and ECC conditions refer to financing charges as part of cost and these must be distinguished from interest on late payments (see Section 17.13). In this sense a financing charge is part of the cost itself and not due to any lateness. An example of a valid financing charge would be the cost of financing a retention deduction for longer due to delay. Claims for payment under ECC may not distinguish clearly between such financing costs, which are allowable under the contract, and claims for interest for a period following the end of the delay, which may not be allowable.

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