Noticias

A familiar situation: the project is late, but relief is in sight. The time for completion has been extended, so we can claim for our additional costs. However, the groundwork for such a claim should not be overlooked.

Prolongation costs are categorised as time related costs incurred as a result of a critical delay event extending the duration of the works for reasons not attributable to the contractor. Such claims, however, do not automatically flow from a successful extension of time claim, particularly, for example, where there has been concurrent delay.

Author: Scott Stiegler, Partner - International Construction Disputes, Vinson and Elkins

When bringing a prolongation costs claim, a contractor should consider carefully the contractual terms, paying attention to the following:

1. What notification requirements exists;
2. The evidence needed to demonstrate the causal link between the delaying event and costs incurred; and
3. How costs are to be substantiated. 

Notification 

When an event arises which a contractor considers may cause critical delay and consequently, will result in additional time-related costs, thought should immediately be given to the contractual notice provisions.

In particular:

1. The form and method of delivery for the notice;
2. The timing of the notice; and
3. The content of the notice.

The form and delivery method for the notice are often specified in the contract, including for example, the requirement to be in writing, to whom it should be addressed, and the method of delivery. Notice provisions are regularly drafted to operate as a condition precedent to entitlement, meaning failure to comply could result in losing the right to bring the claim. Such provisions are readily enforceable, and examples are found in a number of standard form contracts, including the FIDIC suite of contracts. 

Whilst the precise wording is determinative of whether the provision will be treated as a condition precedent, where there is a failure to comply with the contractual notice provisions it can still affect entitlement because of breach of contract.¹

The required content for a notice will also be contract dependent. It is best practice to notify the type of claim being made. When it comes to notifying a claim for an extension of time, it is prudent to also notify of the corresponding claim for prolongation costs at the same time.  

Causation 

Having notified the claim, the contractor should turn to causation. A claim for prolongation costs is a claim for actual time related costs incurred as a result of the delay. A common pitfall is the belief that the analysis necessary to establish entitlement to an extension of time will be the same as that needed to demonstrate an entitlement to prolongation costs.

As explained in Costain Limited v Charles Haswell & Partners Limited: “in order to recover substantial damages, the contractor needs to show what losses he has incurred as a result of the prolongation of the activity in question. Those losses will include the increased and additional costs of carrying out the delayed activity itself as well as the additional costs caused to other site activities as a result of the delaying event. But the contractor will not recover the general site overheads of carrying out all the activities on site as a matter of course unless he can establish that the delaying event to one activity in fact impacted on all the other site activities.²

Notably, the court stated that “simply because the delaying event itself is on the critical path does not mean that in point of fact it impacted on any other site activity save for those immediately following and dependent upon the activities in question.³

Consideration must therefore be given to the type of analysis used to demonstrate the causal link between delay and costs.

Consistent with this, the Society of Construction Law (SCL) Delay and Disruption Protocol, notes that the objective of a claim for prolongation costs is to financially put the contractor in the position it would have been in if the employer risk event had not occurred.⁴

Whilst there might be a tendency to bring a global claim, these suffer typically from relying on assumptions and the general inability to sufficiently demonstrate causation accurately, or at all.  Such claims are rarely successful.  

Substantiation 

The contractor has the burden of proof to demonstrate its claim. It must show that: (1) the costs have or will actually be incurred, (2) they were incurred as a result of a relevant delay event and (3) such costs are recoverable under the terms of the contract. Having appropriate evidence to discharge this burden is of critical importance.

At the outset of a project, a contractor should give due consideration to the type and detail of records to be kept and should establish and maintain effective record keeping systems. It must also consider what documents the contract requires it to keep. 

Keeping well-organised records will allow a contractor to consider what records it has available and can also help identify gaps in records, for example, where a third party is the custodian for certain documents.⁵

Therefore, appropriate documentation requirements in subcontracts ought also to be given consideration.  

When identifying the evidence to substantiate the claim, the contractor should review the records from the time period the delaying event was felt, not the period the project was extended into. The objective of the records is to demonstrate causation (e.g., ‘but for’ the delay event, the costs would not have been incurred) and to quantify the costs claimed. Many industry bodies provide helpful guidance as to what records to keep,⁶ with examples including timesheets, daily reports, photos or videos of the works and pay roll records.

Conclusion

The key points to remember for bringing a well presented prolongation costs claim are these:

1. Always pay close attention to the requirements of the contract, particularly for demonstration of entitlement and notification;
2. Do not assume that an extension of time will automatically lead to a claim for prolongation costs;
3. Demonstrating causation is key; and
4. Always keep detailed records to sufficiently evidence the claim. 

 This article was written for issue 26 of the Driver Trett Digest. To view the publication, please visit: www.driver-group.com/digest-issue-26

1. London Borough of Merton v Leach (1986) 32 BLR 51, page 54 and 90 on issue 14.
2. Costain Limited v Charles Haswell & Partners Limited [2009] EWHC 3140 (TCC) at paragraph 184.
3. Costain Limited v Charles Haswell & Partners Limited [2009] EWHC 3140 (TCC) at paragraph 184.
4. Society of Construction Law’s Delay and Disruption Protocol, Principle 20
5. The Leicester Bakery (Holdings) Ltd v Ridge And Partners LLP (Rev 1) [2020] EWHC 2430 (TCC), in particular paragraph 15 in which the claimant alleged loss on the basis that Ridge held certain documents it needed during an adjudication between itself and a third party.
6.  See, for example, Appendix B of the SCL Delay and Disruption Protocol, in particular Paragraph 4 which covers cost records; and CLC Covid-19: Contractual Disputes & Collaboration Guidance Record Keeping Guidance. Whilst this guidance was drafted in respect of Covid-19 claims, the general principles are useful for record keeping generally.