Prolongation cost — the additional time-related cost incurred by a contractor as a result of compensable delay — is one of the largest categories of damages in construction claims. Core Principle 20 of the SCL Delay and Disruption Protocol sets out the principled approach to its calculation, and corrects a number of common errors that arise in practice.
The fundamental principle is that prolongation cost should be calculated by reference to the period when the delay event was occurring, not by reference to the period at the end of the project when the overrun became apparent. This is because prolongation is the additional cost caused by the delay event, and that cost is incurred at the time the event extends the contractor's involvement on the project — typically by reference to the contemporaneous resource cost.
This approach can produce surprising results. A delay event that occurs early in the project, when the contractor's resources are at peak deployment, may give rise to a much higher daily prolongation cost than one occurring late in the project, when resources are demobilising. Conversely, an event during a period of low activity may justify a relatively low prolongation cost notwithstanding that the overall completion date has shifted.
The Protocol identifies the typical components of prolongation cost: site staff, site overheads (offices, security, utilities, accommodation), preliminaries items (cranes, hoists, scaffolding), and head office overheads attributable to the project. Each component must be identified, valued and substantiated by reference to actual cost where possible, with appropriate adjustments to exclude any cost that would have been incurred in any event.
A common error is to calculate prolongation cost by dividing the contractor's total preliminaries by the original contract duration to produce a daily rate, and then applying that rate to the period of overrun. This approach is rejected by the Protocol because it does not reflect the actual cost incurred during the delay period, and may significantly under-estimate or over-estimate the true prolongation cost.
In Middle Eastern arbitrations, a delay expert witness and a quantum expert will typically work together on prolongation analysis. The delay expert identifies the period of compensable delay; the quantum expert analyses the contemporaneous cost incurred during that period. The two analyses combine to produce a defensible prolongation claim that reflects the true cost impact of the employer-risk events.