Prolongation cost is the additional cost incurred by the contractor as a result of the works taking longer to complete than the contract programme allowed. It typically arises where an event for which the employer is responsible has caused critical delay and the contractor's resources have remained on site for longer than originally planned. The proper quantification of prolongation cost is one of the most demanding exercises in construction claims and quantum expert work.
The analytical foundation of any prolongation claim is the identification of the period of delay for which the employer is responsible. This is fundamentally a delay analysis exercise rather than a quantum exercise, but the two are closely linked: the prolongation cost is calculated by reference to the period of delay established by the delay analysis, and the choice of period has a direct and material impact on the quantum.
The SCL Delay and Disruption Protocol, widely applied in the Middle East, recommends that prolongation cost should be assessed by reference to the cost actually incurred during the period of delay, rather than by reference to the cost that was allowed in the tender for the period in question. The rationale is that the contractor is entitled to be reimbursed for the cost actually incurred as a result of the delay, not for the cost that the contractor predicted it would incur when the tender was prepared.
The principal heads of prolongation cost include site preliminaries (the cost of running the site for the additional period — site management, supervision, site accommodation, plant on hire, temporary works and so on), head office overhead (the contribution to the contractor's central cost base that would otherwise have been earned), finance charges (the cost of funding the additional expenditure pending payment) and, in some cases, loss of profit on alternative work that the contractor was unable to take on as a result of the delay.
Site preliminaries are typically the largest head of prolongation cost and the most straightforward to substantiate. The contractor must produce contemporaneous cost records showing the cost actually incurred during the period of delay, and the analysis must demonstrate that those costs would not have been incurred but for the delay. Costs that would have been incurred in any event — such as the cost of a site agent during a period in which the contractor was carrying out other work on site — must be excluded.
Head office overhead is more contentious. Various formulae have been developed to estimate the head office contribution that would have been earned during the period of delay (Hudson, Emden and Eichleay being the best-known), but each is open to challenge and none is universally accepted. The preferred approach, where the records permit, is to demonstrate the actual additional head office cost incurred as a result of the delay. Where that is not possible, a formula approach may be used as a fallback, with appropriate caveats.
Our quantum experts at Construction Expert Witness have prepared and defended prolongation cost claims on disputes ranging from a few hundred thousand to several hundred million dirhams. We work closely with our delay expert colleagues to ensure that the time and money analyses are properly aligned, and we present prolongation cost claims that are rigorous, well-substantiated and capable of withstanding cross-examination.