54988952 38555168 Extension of Time Claim Procedure[1]

8/6/2019 54988952 38555168 Extension of Time Claim Procedure[1]

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1) General

a) In the absence of express Contractual power

to extend the time for completion, the

Architect could not do so.

b) Failure by the Architect to properly exercise

the power to extend time will relieve theContractor from his liability to pay liquidated

damages and the time for completion may

become ‘at large’.

A) Extension of Time Claim



c) Assessed at the time when the Works

are actually carried out and not whenthey were programmed to be carried out.

A) Extension of Time Claim (Cont’d)




d) E.O.T. clause is put into the Contract tocater for the delay caused by:-

1) Employer or the Architect

Without E.O.T. Clause, the

completion of works delayed by the

Employer/Architect will also relieve

the Contractor from his liability to pay

liquidated damages and the time for

completion may become at large.



2) Neither party of the Contract

i) As a fair sharing of the risk betweenthe parties.

ii) Under those events caused by neitherparty which are expressly provided in

the Contract, the Contractor is entitled

to E.O.T. only. No monetarycompensation will be paid to the

Contractor.

d) (Cont’d)




iii) Under those events caused by neither

party which are expressly excluded

from the Contract, the Contractor is

to take up the risk, no E.O.T. will be

granted.


d) (Cont’d)



e) Under no circumstances will theContractor be entitled to receive

financial compensation for the delay

caused by the Contractor himself.




2) Time at large

a) Where no time for completion is specified,

time is said to be ‘at large’ and a termfor completion within a reasonable time

will be implied.

b) Where the time fixed by the Contract for

completion has ceased to be applicable

and the Contractor is continuing to work

under the Contract.




c) If a Contractor is delayed by the

Employer where the conditions of

contract make no proper provision for

extending the completion date for this

type of delay.


d) Where time is at large the Contractor/

subcontractor’s obligation is to finish

within a reasonable time.

e) LD will become inapplicable.



3) Major obstacles to EOT claim

a) Late or lack of notice from the

Contractor.

b) Failure to recognise delay that results

in contemporary records not being

kept.

c) Failure to regularly update the

programme.





e) Insistence on the part of the Employer’s

professional advisers, that unreasonably

detailed critical path programmes areessential in order to assess the effects

of the delay.

d) Poor presentation of the claim toshow how the progress of the work

has been delayed.



4) Events Qualifying For Extension of Time

a) RICS (HK Branch) 1986 Edition

i) Clause 23(a) Force majeure.

(b) Inclement weather(rainfall in excess of 20

mm in a 24 hours period)

and typhoon signal No.

8 or above.




i) Clause 23 (Cont’d)

(d) Civil commotion, local combination ofworkmen, strike or lockout.

(e) Architect’s instructions issued :-i) discrepancies in contract

documents

(c) Fire, storm, tempest.


iii) postponement of any works

ii) variations



(f) Main Contractor not having

received in due time necessary

instructions, drawings, details orlevels from the Architect for which he

specifically applied in writing.



(g) Delay on the part of nominatedsubcontractors or nominated

suppliers which the Main Contractor

has taken all practicable steps toavoid or reduce.



(h) Delay on the part of artists,

tradesmen or others engaged by the

Employer.

(i) Opening up for inspection of any

work covered up or of the testing ofany of the work, materials or goods.





(j) Unforeseen shortage of labour.

(k) Unforeseen shortage of materials.

(l) Discovery of antiquities.





b) Hong Kong Government Form 1993 Edition

i) Clause 50(1)(b)

a. Inclement weather conditionsand/or its consequences

adversely affecting the progress

of the Works.

b. The hoisting of tropical cyclone

warning signal No. 8 or above.





c. An instruction issued by the

Architect concerning discrepancies

in contract documents.

i) Clause 50(1)(b) (Cont’d)

d. Variations

e. A substantial increase in quantities

of any item of work not resulting

from any error in firm quantities or

from a variation ordered underClause 60.



f. The Contractor not being given

possession of the Site or any

portion or part thereof inaccordance with the Contract.

g. A disturbance to the progress of

the Works for which the Employer

or the Architect or a Specialist

Contractor is responsible.





h. Suspension of the Works, except

due to weather, Contractor’s

default or as provided for in theContract.

i. Any utility, undertaking or otherduly constituted authority failing to

commence or to carry out in due

time work directly affecting theexecution of the Works.






k. Any special circumstance of any kindwhatsoever.

j. Delay on the part of any nominated

sub-contractor, which would entitle

the Main Contractor to an

extension of time.




ii) Clause 50(1)(c)

The Contractor shall not be entitled to

an extension of time for the following :-

a) Shortage of Construction Plant or

labour.

b) Suspension of the Works

i) Provided for in the Contract.




ii) By reason of weather condition

affecting the safety or quality

of the Works.


ii) Clause 50(1)(c) (Cont’d)

b) Suspension of the Works (Cont’d)

iii) By reason of some default

on the part of the Contractor.



iv) For the proper execution of

the Works or for the safety of

the Works not arising from

any act or default of the

Architect/Employer.


ii) Clause 50(1)(c) (Cont’d)

b) Suspension of the Works (Cont’d)



5) Notice Requirements for EOT

Some notice requirements are condition

precedent to the Contractor’s entitlement

and therefore the Contractor loses his right

to claim if he fails to comply with such a

notice requirement.




a) RICS HK Branch 1986 Edition

i) Clause 23

Upon it becoming reasonably apparent

that the progress of the works is

delayed, the Main Contractor shallforthwith give written notice of the

cause of the delay to the Architect.






Any order or instruction issued by the

Architect is likely to cause a delay to

the progress of the works, the

Contractor shall forthwith give notice in

writing to the Architect and specify theprobable effect and extent of such delay.


i) Clause 50(1)(a) (Cont’d)



6) Presentation of EOT Claim

a) Description of the cause delay.

b) The contractual provision which is being

relied upon.

c) The date when the delay commencedand the period of delay.

d) The date of notice of delay.




g) A diagrammatic illustration showing the

status of the programme, progress and

current completion date prior to the

commencement of the delay.

f) A description of the event and effectson progress.

e) A summary of records and particularsrelied upon.




7) Programme

a. Effective and realistic programme

b. Delay has affected completion of

the Works

c. Flow time included in the programme




1) Events Giving Rise to a Monetary Claim

a) RICS (HK Branch) 1986 Edition

i) Clause 11(6)a) Direct loss and expense arising from

Architect’s variations and expenditure

of provisional sums for which theContractor would not be reimbursed

by payment in respect of valuation of

variation, both subject to writtennotice.

B) Loss and/or Expenses Claim



ii) Clause 24(1)

Direct loss and expense arising from:

a) Not having received in due time

necessary instructions, drawings,

details or levels from the Architect forwhich the Contractor specifically

applied in writing;

B) Loss and/or Expenses Claim (Cont’d)



ii) Clause 24(1) (Cont’d)

b) Opening up work for testing;

c) Discrepancy or divergence between

contract drawings or contract bills;

d) Delay by artists and tradesmen orother engaged by the Employer in

executing work not forming part of

this contract;




e) Architect’s instructions regarding

postponement

iii) Clause 34(3)

a) Direct loss and expense arising from

the discovery of antiquities


ii) Clause 24(1) (Cont’d)



b) Hong Kong Government Form 1993 Edition

i) Definition of ‘Cost’

Clause 1 : “….. expenditure reasonably

incurred including overheads whether on

or off the site and depreciation in value of

Construction Plant owned by the

Contractor but excluding profit.”

The following clauses provide an express

entitlement to the recovery of additionalcost.




ii) Clause 5(b)

Compliance with instructions concerning

discrepancies between documents

iii) Clause 34(2)

Provision of facilities for other Contractor

working adjacent to the site as the Surveyor

considers reasonable.




Due to progress of the Works being affected

by failure to give possession of site as are

necessary for the Contractor to carry outthe Works.

iv) Clause 48(2)


v) Clause 54(2)Due to suspension of the Works under

Architect’s Instructions subject to certain

listed exceptions.



vi) Clause 63

Due to progress being materially affected by:-

(a) Late information

(b) Variations issued in Clause 60

(c) Opening up for inspection etc (unless

provided for in contract or unless

inspection reveals a noncompliance).




(d) The work or supply of others (except

utilities) engaged by the Employerwhich are directly connected with the

Works though not forming a part of it.

(e) Late delivery of materials, plant or

equipment by the Employer.


vi) Clause 63 (Cont’d)




It should be noted that the rules for

evaluating variations (Clause 61) contain

some flexibility in that rates may be

enhanced to cover the material affect on

progress. This should be considered as a

convenient alternative to a claim under

Clause 63(b), particularly when the effect is

disruption to progress, rather than a

prolongation of the Works as a whole.

vi) Clause 63 (Cont’d)



vii) Clause 66

Additional expenditure incurred by theContractor as a result of being instructed

to engage a NSC on conditions other than

the standard form of sub-contract.





2) Notice Requirements for Loss & ExpenseClaim

i) General

a) Some notice requirements are

condition precedent to the

Contractor’s entitlement andtherefore the Contractor loses

his right to claim if he fails to

comply with such a notice

requirement.




b) Failure to give notice in accordance

with the contract may bar or severely

prejudice a claim for additional payment

c) Specific notice provisions are inserted

the Contractor must comply with theserequirements




d) Advance warning as possible of thepossibility of an increase in the contract

price

e) Under a duty of care to the Employer in

giving an estimate of the cost of an

intended building

f) Enable the Architect/Engineer/Surveyor

to make assessment




ii) RICS HK Branch 1986 Edition

a) Clause 11(6), Clause 24(1)

Upon written application being madeto the Architect, the Architect is of

the opinion that the Main Contractor

has incurred the loss and/or expensefor which he would not be reimbursed

by payment in respect of valuation of

variation / made under any otherprovision in the Contract.




iii) Government of the Hong Kong SAR (1993

Edition)

a) Clause 64(1)

Contractor shall give written notice of

his intention to claim a higher rate

within 28 days of Surveyor’snotification of the rate.




b) Clause 64(2)

Contractor shall give written notice of his

intention to claim any additional payment

within 28 days of the event giving rise tothe claim.

c) Clause 64(5)

If the Contractor fails to comply with the

notice provision contained in Clause 64(1)

and 64(2), such claim shall not beconsidered.




3) Prolongation Claims

Typical heads of claim arising out of

prolongation of the contract period are:

a) Site overheads or preliminaries

b) Head office overheads

c) Loss of profit




d) Cost escalations

e) Cost claims from subcontractors

f) Depreciation on assets

g) Financing charges

h) Delayed release of retention

i) Adjustment of levies




4) Site overheads

a) Actual Costs

The extra site overhead costs due toprolongation are those incurred after

the original contract completion date

and up to the extended (or actual)

completion date.

Some may prefer the costs incurred

during the actual period of delay.




Documents/information to substantiate the actualcosts incurred:-

i) Staff

- Organization chart/site diary records

showing the staff involved.

- Staff salaries payroll records or

contract of employment.




ii) Plant

- Site and plant records showing

the plant involved.

- Plant hire purchase agreement/contracts of plant purchase/plant

costs depreciation record.

iii) Insurance/Bond

- Premium receipts for the prolongation

period.




iv) Security/Safety Services

- Security staff payroll records.

- Payment receipt for contractedsecurity services.

v) Site Facilities e.g. site office, toilet, storeroom, etc

- Actual cost records as appropriate.




b) Preliminaries BQ

1. Time-related items

2. Non-time-related items

3. A price per day/week/month to

apply to the prolonged period




5. Not complying with the provisions of

most standard forms of contract which

require loss and expenses or costs to be

paid

4. Very simple means of establishing an

additional payment for site overheads




5) Head office overheads

Components of head office overheads

may be listed as follows:-

a. Rent and rates of offices, plant and

yards;

b. Maintenance and running costs;

c. Directors’ salaries and expenses;




d. Head office, technical salaries and ‘on

costs’ (surveyors, planners,

purchasers and the like);

e. Head office administrative staffsalaries and ’on costs’ (accountants,

typists, messengers, cleaners,

maintenance staff);

f. Administrative expenses, such as

postage, printing, stationery,

telephones;




g. Traveling expenses, including theprovision of motor cars for directors

and staff;

h. Legal and professional fees;

i. Depreciation.




i) The actual cost approach

1. Cost of the actual head office

overheads affected by the delay

2. The difficulty arises in identifying

the increased expenditure directly

and indirectly arising from the

delay on the project in question




3. Generate a timesheet, showing thetime which they have spent on the

project , compared with the time

spent on the project during the earlierperiod of construction

4. Other head office costs such as

accounts, secretarial and clerical staff,rent, services, stationery, etc,

effectively exist to support key staff




A global claim ie: where a Contractor claims histotal head office expenditure and deducts from

that total the amount included in its tender.

Documents/information shall be provided by the

Contractor to substantiate the actual costs

incurred:-




- Actual cost records, e.g. time sheet,

contract of employment, etc.

- Auditor’s account showing the detailed

breakdown of administrative expenses

covering the whole contract period.




ii) The lost opportunity approach

The lost opportunity approach uses a

formula for its calculation, which is simple,

cheap, quick and produces a reasonable sum

of money for very little effort.

There are three formulae commonly used forhead office overhead calculations: the

Hudson formula, the Emden formula and the

Eichleay formula.




a) Hudson’s formula

Contract

Period

100

Period of

Delayx

Contract

Sumx

Head Office Overhead

Percentage

Note: The Head Office Overhead

percentage in the Contract




The formula adopts the head office overhead

percentage from the contract as the factor

for calculating the costs. This may bear little

or no relation to the actual head office costs

of the Contractor and therefore Hudson’s

formula is often criticized as unrealistic.




b) Emden’s formula

Contract

Period

100

Period of

Delayx

ContractSum

x

Head Office OverheadPercentage




Note: The HO/Profit percentage is head office

percentage, arrived at by dividing thetotal overhead costs and profit of the

Contractor’s organization as a whole by

the total turnover.

This formula has the advantage of using

the Contractor’s actual head office/profit

percentage rather than the one

contained in the contract and has

received judicial support in a number of

cases.




c) Eichleay formula

Total value of work for the

company as a whole

during contract period

Total Head OfficeOverheads

During contract

period

x

Value of work during

contract period

ie:

= Head Office Overheads Allocated to

the Contract




Contract Period

Period of Delayx

Head Office Overheads

Allocated to the Contract

= Amount Claimed




1. Comparing the value of work carried

out in the contract period for theproject with the value of work carried

out by the contractor as a whole for

the contract period.

2. A share of head office overheads can

then be allocated in the same ratio andexpressed as a lump sum to the

particular contract.



3. The amount of head office overheadallocated to the particular contract is

expressed as a weekly amount by dividing

it by the contract period.


4. The period of delay can then be multiplied

by the weekly amount to give a total sum

claimed.




6) Loss of profit

a. Some contractual provisions only

provide for recovery of additional

cost or expense, a claim for loss of

profit is not permissible




b. The Contractor to show some evidence

that he was given the opportunity to

tender for other projects and that he

could not reasonably take advantage of

these opportunities because of the fact

that his resources were retained on the

delayed project




c. the Contractor would be advised to keep

a record of the following:-

i) All tenders submitted and

awarded so that a success ratiocan be established;

ii) All projects for which the Contractor

was invited to tender, but whichwere declined or a deliberately high

tender submitted.




If the Contractor can demonstrate that, on the

balance of probability, he would have been

able to obtain other contracts during the periodof overrun, that alone ought to be sufficient to

establish the claim in principle.




7) Cost escalations

If the contract is fixed price there is no

mechanism for adjusting the contract sumfor fluctuations in prices of labour and

materials




Published indices, eg: “Index Numbers of theCosts of Labour and Selected Materials used

in Government Contracts” by the Hong Kong

Government Census and StatisticsDepartment.

Invoices and trade agreements to show actualprice increases.




8) Cost claims from subcontractors

Where the Contractor incurs liabilities

under his subcontracts or supplycontracts as a result of a event for which

he is entitled to recover cost.




9) Depreciation on assets

Where a montary claim arises from a

substantial delay to the contract period,necessitating the Contractor’s plant and

equipment to be held on site for much

longer than planned, then the Contractorincurs a depreciation in the value of those

assets. This loss would be recoverable.




HK Government Form 1993 Edition clause 1(1)

defines “cost” as including “depreciation in value

of Construction Plant owned by the Contractor”.

The calculation may be based on actual market

values, if available, or representative values taken

from accounting practice.




10) Financing charges

a. A debt which is paid late does not

entitle the recipient to interest at

common law

b. The interest or finance charges are

an integral part of the cost or lossand expense




c. If the value of work increase, the

additional financing ought to berecovered in the rates for variations

Documents/information shall be provided tosubstantiate his claim:-

i) Documentary proof of overdraft facilitiesor money borrowing to finance the

expense.




ii) Evidence of draw down of the overdraft

facilities or money borrowing.

iii) Borrowing ratio of the company.




11) Delayed release of retention

A direct cost arising from the disruption

to progress which the Contractor would

usually be entitled to recover.

The period by which the release of

retention will be/has been delayed

multiplied by the finance charges incurred.




12) Adjustment of levies

The value of the contract increases as

a result of the payment of additional

sums against claims.

B) L d/ E Cl i (C ’d)




13) Disruption and loss of productivity claims

a. Works may be disrupted without a

delay to the contract completion

date.

b. Establish that a planned orderly timing

and sequence of events was affected

by causes within the Employer’scontrol to the extent that the

Contractor was prevented from

carrying out the work in that plannedorderly timing and sequence.

B) L d/ E Cl i (C ’d)




c. Many disruption claims fail becausethe Contractor is unable to show that

the additional costs were caused as a

result of matters for which theEmployer/other party was responsible.

B) L d/ E Cl i (C t’d)




d. To compare actual productivity duringa period of disruption with productivity

during a period when no disruption

was evident.

This method does not take into

account errors in the tender.

B) L d/ E Cl i (C t’d)




e. i) Daily disruption schedules may be

used: the record, for example.

ii) Access to a particular area was

not available to the specified time,or in the specified condition

iii) Labour and plant left idle as a

result for a recorded period of

time

B) Loss and/or E penses Claim (Cont’d)




e. iv) Or a site instruction received at a

recorded time necessitated thetransfer of noted resources,

resulting in demobilization and

remobilization.




B) Loss and/or Expenses Claim (Cont d)

f. The site diary could be better completed

with relevant information.

g. All such records must then be verifiedand signed by the supervision consultant

as an accurate record.





14) Acceleration claims

a. An express term of the contract or a

separate agreement

b. The Contractor is not entitled to

unilaterally decide to accelerate and

expect the Employer to pay theacceleration cost.





c. The Contractor is required to

demonstrate the cost of resources

which would have been employed hadno acceleration measures been taken.





d. The acceleration costs might consist of:-

i) Deployment of additional plant,

formwork

ii) Deployment of additional workforce

iii) Working overtime

iv) Additional overhead and profit

thereon





15) Quantum meriut

a. “the amount the Contractor

deserves” or “what the job is worth”

b. Payment on a quantum meriut may

arise:-





i) Where there is no contract at all;

ii) Where changes are made under acontract to a degree which renders the

work carried out substantially different

from that contracted.





16) Ex-gratia claims

Claims which the Employer is under no

contractual obligation to pay.





17) Common law claims

Claims for damages for breach of

contract at common law.





18) Adjustment for overheads and profit invariations

Refer to wording of loss and expenseclauses eg:





“If … the Architect is of the opinion that the

Main Contractor has been involved in direct loss

and/or expense for which he would not be

reimbursed by a payment made under any other

provision in the Contract by reason of the

regular progress of the Works … having beenmaterially affect … then the Architect shall

ascertain … the amount of such direct loss and

expense.”

a. RICS (HK Branch) 1986 Edition clause 24:




) oss a d/o pe ses C a (Co t d)

b. HK Government Form 1993 Edition

clause 63:

“If … the Architect is of the opinion that the

Contractor has been or is likely to be involved in

expenditure for which the Contractor would not

be reimbursed by a payment made under any

other provision in the Contract by reason of theprogress of the Works … having been materially

affected … then the Architect shall ascertain the

Cost incurred …”






p

e. Any variations which do not cause thedelay or which is not the subject of the

prolongation claim, should be ignored




p

19) Time limits on recovery

a. Within six years of the cause for

contracts under hand

b. Within 12 years for contract under

seal




20) The duty of mitigation

a. What steps the Contractor

takes to mitigate the effects ofthe delay.

b. What steps the Contractortakes to mitigate the losses.

The End



Thank You

Mr Tse Sek Chuen

Widnell Ltd

www.widnell.com

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