Assesing eot and prolongation cost claims

Now days the construction projects are becoming more complex, time constraint, expensive and challenging. A small change in any of the above is leading to a time or cost loss to the contractors as well as the client. This technical paper describes about the problems involved in a building services system Subcontractor, Project was delayed due to wide variety of causes like; Impact from directed changes (pricing and effect on unchanged work), Untimely direction and administration of changes, Deficient or tardy customer supplied materials or equipment, specifications and drawings, design releases, facilities and utilities, or payments, Delays, disruptions and interferences by others.

Contractors are contractually obligated and have to provide adequate explanation and documents of claims with complete submittal of the factual causes, contractual basis, and quantified impact, documentary evidence like keeping regular records of delay events, disruption events and notification and proposed resolution from the contractor and requested relief which are highlighted in the following Technical paper. And the usage of these documents which serves as an evidence and proof for Extension of time prolongation costs claims and disruption related loss of productivity costs claims is also detailed in the submitted paper. Mainly that the Procedures are followed by the Building services system Subcontractor in the referred claims which can be considered as a recommended practice.

Since the contractual completion date has expired and that the work on site has been in extended period due to delays not attributable to Building services system Subcontractor. It is only appropriate therefore to have the Client's determination and approval of this extension of time and prolongation costs claim based on the defaults of the Main contractor (Main Contractor is the client in development of the project). Due to these unforeseen delays, cash flow has been adversely affected and facing financial crisis, thereby causing financial losses in the project. Under this circumstances, Subcontractor request financial relief from Client.

LIST OF TABLES & FIGURES

1) Table 2.1.1 ' Extension of Time Summary

2) Table 6.2.1 - Delay Impact Summary of Subcontractor time claim

3) Table 6.3.1 - The Cause and Effect schedule

4) Graph 6.4.1 ' The Labour Histogram

5) Table 6.4.1 - Productivity Rate Analysis Report

6) Table 7.7.1 ' Subcontractor's Quantum claim costs Summary

1.0 THE INTRADUCTION:

This Technical paper has been submitted to demonstrate to the readers as practical advice and the procedures that can be followed as recommended practices by the Building Services system Subcontractor in the preparation of time related cost claims and productivity loss disruption claims. Particularly reminded that these matters in this role is set out in their Building FIDIC form of contract and is normally limited to determining quantum; It does not usually extend to determining liability. This is an acceptable claim to the project in accordance with conditions of contract and circumstances which contractors have prevailed, it is generally quickly determinable. Procedural approach, Contents and a brief summary of each section of Building Service Sub Contractor claim.

It cannot be emphasized too strongly that ascertainment of loss and/or expense is an exercise in calculating as precisely as possible that which is incurred by the contractor directly and solely due to the matters listed in the contract. It is not an attempt to impose a penalty on an employer or design team

The Author's view of points and recommendations on the importance of supporting particulars for effective claim submittal has given at the end of this paper.

2.0 STATEMENT OF CLAIM EXECUTIVE SUMMARY:

2.1 EOT Summary

It is better to highlight the following details for an easy understanding and a quick review on the submitted claim to the Client and the project team. The date of Contract was signed with a firm contractual completion date. The reasons for delays prompting out of sequencing work, design changes Variations, approvals process, including reworking for redesigned areas following installation, logistical events causing access delay and disruption of work face lack of coordination of the various trades and other contractors on site which was System contractor suffered from the commencement of works throughout the project. Each of above principle heads of time delay and disruption events are significant in their own right but sometimes the initial delays in respect of approvals and design changes will be superseded by delayed release of work faces and logistical problems on site as a direct consequence of the lack of progress of other trade/contractor works which makes impossible for the works to complete in a timely and productive manner.

Any events assessed and agreed extension of time prior to approved Contract program of works should be mentioned which gives a revised extended completion date to be considered in the evaluation of claims.

Final completion of the project is determined by the Commissioning of the services and getting final completion certificate from related Authorities which logically is delayed until Civil/Interior fit-out finishes/MEP works is completed by the respective Contractors, thus delaying the overall project completion.

From the 'Impact of the event (The Effect)' analysis an overall delay/disruption period should be demonstrated here for the events until the completion date which the Sub Contractor requests an Extension of time to the time for completion in accordance with the Conditions of contract.

2.2 The Claim Summary

This statement of claim document provides the Contractor with the information to make an interim determination of extension of time and reimbursement of the expended prolongation costs in accordance with terms and conditions of Subcontract Agreement.

Strictly in accordance with the Subcontract agreement and established facts of delays herein, the Time for Project completion date should be extended until 4th August 2010 from the Original Completion Date of 30th Sep 2008.This Extension of Time Claim is predominantly related to following delays which are critical for the completion of the project and have been preventing Building services system subcontractor from completing the subcontract works on schedule.

* Initial Delay of 208 Calendar days as explained in item 3.5.3 below.

* Incomplete site dependence / predecessor activities.

* Delays in issuing approved shop drawings to Building Services Subcontractor.

* Delays due to pending Request for Information (RFI) approval.

* Delays due to Pending Variation Approvals.

However, Subcontractor in the interest of the project has attempted to mitigate the delays and these delays are justified in detail in Section 3.0. Delay Analysis and Section 4.0 Basis of Entitlement of this claim.

In view of the above, Subcontractor hereby claim for the time extension of 573 calendar days over and above the Original Contract Completion of 30th September 2008 till 4th August 2010 which is the Current Projected Target Completion Date as per the Impacted Program considering delays / disruption in progress. However, this projected target contract completion date is based on the assumption that Subcontractor would not suffer from any further delays on account of Main Contractor obligations and compliances. In this statement of claims, the delays have been accounted till 15th Nov 2009.

Table 2.2.1 The Extension of Time claimed can be summarized as follows.

Scope of Works

Furthermore, based on the above mentioned delays, Subcontractor is also submitting its entitlement /claim for Actual Prolongation Cost expended from 1st October 2008 to 15th November 2009 for Main Contractor / Client examination and approval.

The conditions of contract which make provision for both the parties to delay damages and extension of time for any such delay to be mentioned, Subcontractor relief from its obligations of delays to complete by due date and its claims for an extension of time with associated costs supported by detailed particulars later within claim document submission and invites the Client to make a fair determination in accordance with the stipulated clauses of contract. For example 672 days with a revised completion date of 04st August 2010 with associated prolongation/disruption costs of AED 20,818,549.00 (Table 7.7.1-Subcontractor's Quantum Claim Summary).

3.0 BACKGROUND

Here mainly the contractual issues on which the agreement is made between the Subcontractor and Client and the background of the claim to be highlighted as follows:

3.1 The Salient Features: Contract parties, Building services subcontractor and the Client bound by the contract with company name and services, Contract conditions was based on FIDIC 1999 Yellow Book with amendments issued by Client. Letter of Acceptance issued with highlighting major inclusion and exclusion of scope of work which was agreed by both parties and signed off. Other parties in the project are Main Contractor, Design and Supervision consultant, Architect and Project Manager as mentioned in the agreement.

3.2 Subcontract documents: The System subcontract includes the System subcontract agreement, General and Special conditions, scope of system works of the services, Bill of quantities, Contract drawings and specification incorporated documents and annexure etc.

3.3 Scope of Work: The Subcontract works comprises of the supply, Installation, Testing and Commissioning of Building services systems, as per approved shop drawings for High Rise Building Project as described in contract documents.

3.4 Contract duration: Project commencement and completion date as mentioned on Letter of Acceptance (LOA).

3.5 Project Program of works ' Subcontractor Work program should be incompliance with Main contractor's work program including with all other trade of activities in the project for properly coordinate and works as team for smooth completion of the project. A brief summary of the events involving in the Subcontract scope of works Completion dates are as follows.

3.5.1 The Contract was signed on 17th May 2007, with a firm contractual completion date of 30th September 2008.The Project has a total duration of 502 days.

3.5.2 Subcontractor has submitted a program comprising of 58 weeks for the completion of scope of works along with tender.

3.5.3 The Main Contractor has issued a Clause 14 Program of Works (Impacted) in February 2008 wherein the completion date was projected April 2009 as against the original completion date of 30th September 2008 allowing an initial delay 0f 208 days.

3.5.4 Accordingly Subcontractor submitted a detailed program in April 2008, which was in line with extended Contractual Completion date of April 2009.

3.5.5 Main Contractor issued further revised program on 16th August 2009 and this revised program sets 31st January 2010 as the further revised contract completion date.

3.5.6 In August 2009, Sub contractor submitted an impacted program with the revised target completion date of 8th May 2010.

3.5.7 Main contractor issue is again further revised program on 5th Oct 2009 and this revised program sets a 4th August 2010 as the further revised contract completion date.

3.5.8 As per the last issued program by Main contractor the current projected completion date is extended from 30th September 2008 to 4th August 2010.

3.5.9 Baseline program is not in line with the original Contract completion date which is issued by Contractor. Baseline program has complete predecessor and successor activities to advise the Contractor on account of the work sequences to perform his obligations and enable the smooth execution of Building system subcontract.

3.6 The Critical Path: The Baseline program of works has Critical Path that runs through the Engineering Works, Physical Site Installation and Testing and Commissioning. The Baseline program of Works comprises the following sequence of work.

3.6.1 Pre Installation Activities ' Engineering works and Material Procurement

3.6.2 Site Installation Activities - First Fix (cable pulling by others), Second Fix (Termination and Field devices installation), Third Fix (Testing, Labeling and Pre commissioning) and Final Fix Testing Commissioning.

3.7 Delay Damages ' In the event of any delay caused by Building Service subcontractor in completing the works, Subcontractor shall be liable to pay to the Client delay damages as defined in the Contract. For example damages per day calculated as 20% of total duration of actual contract period, Maximum amount shall not exceed 10 % of contract amount.

3.8 Entitlement of Extension of time for completion - Entitlement to an extension of time and thereby relief from any liability for Delay damages arises from the General conditions of Contract should be mentioned here. Also previous approved extension of time claim with additional prolongation/disruption costs prior to these claim period details also should be separated and highlighted in this section for effective assessment of submitted claims.

3.9 Notification of Delay Events - The Conditions of Contract clause related to the Subcontractor Claims provision, whereby the Contractor has to notify Client/Employer as soon as it aware of circumstances which may delay or disrupt the works, or indeed which may give rise to a claim for additional payment has to be defined herein. All the notifications of delay should be provided for in the Narrative under section 6.0 which generally are the Subcontractor's opinion complying with the provisions of contract in respect of notice.

3.10 Mitigation and Acceleration proposals ' Building Services System Subcontractor effort to mitigate and overcome of the delays should be highlighted here, for example measures such as Fragmented/sectionalized working, Aid to the Client in gaining approval, Aid design consultants in progressing designs and re-designs, Increase in labour force where possible to accelerate, Working extended and prolonged hours when achievable, Decreasing labour levels to suit available workloads. These all acceleration and deceleration issues can be resolved by both parties through contractual documents like supplementary agreement and revised work program.

4.0 DELAY & DISRUPTION ANALYSIS:

4.1 Methodology ' Due to the fact this is a complex problem with a number of issues, causes and effects Subcontractor used the agreed Baseline program showing the original contract dates for activities, the actual dates of the events, anticipated resources details from the program of work and comparing them with the actual resources being expended on site to make an accurate assessment of the time impact and the disruption occurred due to the changes.

4.2 Delay Analysis 'To assess the project delay, the updates of program critical path must be checked to see when the relevant delaying events transpired. By updating the actual dates which have transpired to date ad by analyzing the revised anticipated project end date, the effects and delays to the project from the said actual events will emerge. It is important to attach the regular program updates as a supporting document for the delay analysis to study whether there is sufficient float within the logically linked activities to absorb the delay; the activities either started or completed outside of the planned dates have any impact on the critical path of the project.

4.3 Disruption Analysis ' Using the updated program of works, which tracks the progress of activities over time, one can determine within in each month the quantity of earned hours. Simply this equates to the anticipated required number of hours, under normal working conditions, to complete the amount of work that has actually been carried out. When this hours earned data is compared to the actual number of hours it produces a ratio of productivity. If the number of hours earned is less than the number of hours expended, the Subcontractor anticipated productivity is not being achieved. This lack of productivity if related to direct result of the delays and disruption to the works caused by the events then that should be described and detailed in section 6.0 of the claim document.

5.0 CHRONOLOGY OF THE EVENTS FOR THE CAUSE OF DELAY - The delay and disruptive events that was occurred during the course of the project duration as listed in the Summary of these claim should be described and detailed herein along with the supporting particulars in the chronological order.

6.0 THE IMPACT OF THE EVENT

6.1 Background ' In order to monitor progress, the original baseline program with the agreed contract project completion date shall be used throughout the duration of the project and its updates will be used for delay and productivity analysis.

6.2 Impact of Event ' In this section, a detailed explanation and illustration including extracts taken from each program update to demonstrate the impact of the delays at different points in time.

For example, Table 6.2.1 shows Delay Impact Summary of Sub contractor time claim.

Illustration window of schedule updates by Subcontractor

6.3 Cause and Effect Schedule

Below Table 6.3.1 shows the Cause and Effect schedule identifying how the event detailed under section 6 .0 affected Subcontractor site activities and performance.

SL

Subcontractor has unable to proceed with installation, Reworks, progress of works out of sequence, labour to be redeployedbecomes out of sequence, Labour must re-mobilize and returned once civil works have been completed (stop start effect)

Unable to start installation, reworks, testing of the system services, labour to be redeployed to other available areas

Drawings and Material Submittal Etc.

Size of console and Matrix components to be resolved and delay in the procurement, Installation and Termination

Lost time due to waiting for agreed facility access directly delays progress of works

Subcontractor has been forced to commence works in uncompleted areas to mitigate delays, this has stop start effect reduces productivity

Death of worker caused due to Tower crane operator poor attention closure of upper structure of tower preventing progress of works.

Unable to proceed with installation, Reworks, progress of works out of sequence, labour to be redeployed

Unable to commence works awaiting confirmation of approval, progress of works become out of sequence, labour redeployed

6.4 Productivity Rate Analysis

In the table 6.4.1 below, Building Services Subcontractor report is show that actual hours expended and hours earned have been compared to produce a productivity rate. The anticipated productivity factor expected prior to construction is of course one (1). The actual man hours expended to equal to the hours earned. If a productivity factor of greater than 1 (1?) is achieved then the labour is not working effectively and is not accomplishing the required progress. This means Subcontractor are achieving less than anticipated. The causes for this ineffectiveness of Subcontractor labour are detailed in section 6.3 above.

Graph 6.4.1 Labour Histogram

The Graph above plots the Manpower Histogram submitted by Subcontractor over the course of the project. It illustrates the poor level of productivity achieved. Due to the negative impact variations and design/other changes have impacted on the Construction process.

Table 6.4.1 productivity rate Analysis:

Period ending05

The average productivity rate observed is 1.47, well down on the anticipated productivity expected to be achieved. This indicates that it has actually taken on average 1.47 hours of labour on site to achieve 1 hours anticipated progress.

7.0 EVALUATION OF ADDITIONAL COSTS.

7.1 Introduction ' Building services subcontractor claim prolongation costs entitlement incurred by delay events stated in section 3.0 and Cause of effect in Section 6.0 above in accordance with sub contract agreement, associated delays and disruption. The details of prolongation costs are enumerated below.

7.2 Prolongation costs ' These costs are the forecast costs that will be incurred during the period of delay. This forecast is based on the actual costs incurred to date and the formula used to calculate the likely costs resulting from the delay observed. These costs are the combination of the Additional Manpower Costs, Site office Costs, Extension of Warranties and Head Office overheads etc.

7.2.1 Additional Manpower Costs: Subcontractor allocated and had foreseen that all the time related overhead costs consisting of Labour, Management & supervision including salaries and wages to staff / officers etc would be recovered in the original Contract period through the execution & completion of the works as planned.

7.2.2 Site Office Costs' Additional costs are already incurred in the extended stay period of Project, accordingly the subcontractor seeks payment for Telephone, Fax, Internet Costs, Laser Printer, Photocopier, Stationeries & Refreshments, Computer and other associated maintenance.

7.2.3 Extension of Warranties ' The required equipment was purchased during the course of project intending to have a completion as agreed and subsequently covering defects liability period. However the delays have forced subcontractor to maintain the warranties during the extended period which in fact would have been the defects liability period.

7.2.4 Additional Head office overheads 'It is evident that a cost element of every bid is a percentage of the direct costs that incurred due to general running and operation of the business. These are costs that being referred to as 'Head Office Overheads' When it is desired to claim extra head office overheads for a period of delay a calculation known as 'Hudson's formula' can be adopted and is recognized in numerous jurisdictions, as follows:

(H/100) x (C/CP) x PD = Cost (Additional Payment Due).

Where H= Head office and Overheads in %,

C= Contract sum,

CP=Contract Period (Weeks),

PD=Period of delay (Weeks).

7.3 Increased costs ' These have been substantial increases in the cost of labor during the Contract period which is caused directly by the prolongation. For example, the labor rates paid in 2007 were increased by 9.5% at the start of 2008 to take into account inflation and Subcontractor has forecast a standard rise of 11.75% at the start of 2009 to bring current rates in line with the current labor market. Also the costs of camp facility for labor increase from AED 745/- to AED 1150/- per man per month.

7.4 Productivity loss costs ' Loss production involves the identification of the time where insufficient return, in terms of physical progress, was incurred to cover the originally intended deployment level. For example, based on Productivity rate analysis table and forecasted Manpower Histogram, it can be seen that a total amount of labor resources employed by Subcontractor on the project till end of March 2010 - 1,115,471 man hours, Earned man hours is 782,989 out of Estimated man hours 885,509 as per original design and scope work. Revised Estimated man hours 1,353,509 after all design changes and disruption etc., an increase of 52.85%. Multiplying the total labor cost on the project with this percentage will give the additional labor cost of production loss.

7.5 Finance costs ' As a Consequence of the delays to completion and prolongation of the works resulted from causes of delay. Subcontractor has incurred additional cost on following heads.

* Performance Guarantee /security bond.

* Advance Payment Guarantee.

* Insurance charges

* Fixed deposit cost on retention monies

7.6 Claim Preparation Costs - The Cost incurred for Subcontractor to employ additional resources of dedicated consultants to prepare further, more detailed claim.

7.7 Quantum Summary ' Based on the previous sections of the claim document the costs incurred and the subject of the request for compensation is to be summarized here.

Table 7.7.1 ' Quantum Cost Claim Summary as follows:

Section

8.0 CONCLUSION/RECOMMENDATION:

In view of the above, Building Service Subcontractor request an interim extension of time based on the delays covered here above by the Subcontractor representing 672 calendar days until 4th August 2010 for overall Completion and associated prolongation actual cost of AED 20,818,549.00 Until 15th November 2009 due to the fact of Subcontractor financial suffering and smooth functioning of works at the earliest.

In light of the above facts and circumstances, it is very clear that if any act of the Main Contractor/ Client to deny Sub contractor of his rightful contractual entitlement for time and cost associated with delay would be violation of terms and conditions of Contract. Subcontractor has Properly developed, accurately maintained and supported by the project documentation is a vital element and would greatly helped in the preparation of delay/disruption and its associated costs claim .Accordingly Subcontractor is legitimately entitled for the actual cost claimed in the extended period of stay from 1st Oct 2008 till 15th Nov 2009 and Subcontractor shall be claiming the balance extended stay cost and time on regular basis through monthly Interim Payment Certification( IPC ) till the completion of the project. Accordingly Subcontractor reserves the right to add, alter or delete any of the submissions pertaining to cost and time as above or as enclosed or as situation dictates.

After analysis of the Subcontractor's claim and before an amendment or negotiation plan is prepared, all counterclaims, back charges, credit or off 'sets arising out the same issues or circumstances should be identified, developed, priced, and included in the resolution.

If the analysis validates all aspects of a claim, a contract amendment incorporating the requested adjustments should be prepared and processed in accordance with Project procedures. If not, and some significant difference of opinion regarding validity, entitlement or quantification exist, a negotiation plan should be developed, documented and approved as a prerequisite to negotiations with subcontractor, Negotiation should be conducted with the objective of reaching a fair and equitable resolution of the claim, not to correct settlements which deny either party their full rights under the contract.

9.0 SPECIFIC REFERENCES:

> High rise building project construction, Building Services Subcontractor's Claim Document submitted to Client 'Rev 0 (Due to confidentiality the details not revealed)

> The Surveyors Construction Handbook ,Standard form of Claim analysis in Part 4, Section 2.RICS update 15 published in December 2003, Published by RICS Business Service Ltd.

> AACEI Technical Presentation on 'Dealing With Cumulative Impact Claims' by Ms .Emelyn W. Martinez on 7th April 2010 at API Auditorium, Dubai, UAE.

> AACE International, Recommended practice No. 45R-08.

> Terry Williams, 2001 Assessing extension of time delays on major projects.