Typical Issues
Complexities often arise in the analysis of prolongation claims due to competing theories of causation and methodologies for assessing critical delay. As the responsibility for delays is often contentious, all these factors make the assessment of time-related prolongation costs a complicated topic. The following issues generally arise when evaluating time-related claims:
- Where the use of competing methodologies for delay analysis gives rise to alternate versions of critical delay impacts and the apportionment of culpability for the Employer or Contractor delay days.
- Questions may arise, because of the impact of concurrency on prolongation costs, as to whether there are direct costs, costs that would have been incurred in any event or whether delay days are treated in some form of proportionality.
- Time related running costs and management costs are subject to verification, testing the underlying actual invoiced costs and management payroll to determine that such costs are truly time related and reasonably incurred. Whether invoiced and management costs are truly time related and reasonably incurred, as this may be subject to competing verification
- Depending upon the legal interpretation of the Contract, the Contractor may be able to assert entitlement on a change basis or contractual basis enabling prolongation to be valued rate-based, as opposed to compensable actual cost.
Insight
In our experience, the compilation of prolongation costs is usually undertaken by reference to the Contractors’ cost accounting system. Such costs are presented by accounting export of the relevant cost files (typically extracted from the annual accounts on a monthly profile) and is often referred to as the “prolongation data set.” The accounting cost codes can be examined against this data set, either as part of producing a prolongation claim or for assessing a presented prolongation claim.
Time-related costs are typically ongoing time related costs and of a repeat nature with an examination of prolongation costs considering whether costs are time versus task related. A mapping of prolongation expenditure can also identify monthly fluctuations or irregularities in the prolongation data set to smooth out the accounts which necessarily capture the contemporaneous posting of figures into the accounting system.
The record keeping needs to provide substantiation to enable the underlying costs to be tested and traced back to invoices and payroll. Reliability of the accounting system is best undertaken by an audit inspection, together with an appropriate sampling method to verify the accuracy of such costs.
Connected to critical delay causation, the assessment of prolongation costs needs to identify those costs which are directly impacted. These could be area-specific or section-specific costs, or alternatively a site-wide prolongation cost, where critical delay days are claimed to have site-wide impact.
The Contractor can claim for site-based overheads and unrecovered or unabsorbed head office overheads where the critical delay gives rise to overhead losses. Various methods are available to compute head office overheads that are unabsorbed and time related.
Where the Contractor has claimed recoveries elsewhere, which, subject to Contract, may overlap with recoveries in the assessment of prolongation costs, a credit needs to be identified to avoid duplication.