Construction delays are all too common, but they aren’t only an inconvenience; they also come with a hefty price tag, and with it the question of who is responsible for the costs?

This is where prolongation costs come in. As a construction contractor or client, it’s important you understand what prolongation costs are and how they work because the more you do, the more likely your claim will be successful (and your additional costs recovered.

In this blog, we’ll walk you through what prolongation costs are, when they apply, and why they’re so significant in construction contracts and dispute resolution.

Prolongation costs in construction refer to the additional expenses incurred by a contractor because of unforeseen delays to the project (which are not the contractor’s fault).

Client-caused delays sometimes mean that contractors have to stay longer than initially planned on site, which brings a range of unexpected costs, also known as prolongation costs. These can include extended site management, site accommodation and plant hire.

There are four main cost categories: site overheads, project management costs, equipment hire and financing costs. Here are some examples of what each category might include:

• Site overheads – This might be stationery, office supplies, temporary utilities and IT equipment maintenance.
• Project management costs – For example, staff salaries, allowances, medical insurance, annual leave and accommodation.
• Equipment hire – Contractors often hire equipment, so this is another cost to consider, and can include plant, fuel and scaffolding.
• Financing costs – You might also need to consider how a project delay affects your bonds, bank guarantees, finance costs and bank charges.

Many people get confused between prolongation costs, liquidated damages and loss and expense, so are they the same thing?

Put simply, no, they aren’t the same thing.

Prolongation costs are time-related costs a contractor incurs because the project is delayed due to employer-caused delay (e.g. variations) or other events which entitle the contractor to an extension of time (e.g. exceptionally adverse weather).

Liquidated damages are pre-agreed amounts that the contractor pays the employer for delays the contractor is responsible for.

Loss and expense is a broader category covering any additional costs the contractor suffers due to events affecting the works. It can include prolongation costs, but also covers other types of disruption or inefficiency.

A common misconception is that securing an extension of time (EOT), and thus avoiding liquidated damages, automatically entitles a contractor to recover prolongation costs. That is not the case.

Entitlement to prolongation costs must be proven separately and include evidence of actual costs incurred, directly as a result of the delay.

Prolongation costs are recoverable when they are as a result of delay for which an EOT has been granted under the contract. This will depend on the contract. For example, JCT contracts refer to ‘relevant matters’ entitling an EOT, while NEC contracts refer to ‘compensation events’.

However, contractors need to assess prolongation costs at the time of the delay impact (rather than the extended period) due to the construction project costs profile.

To recover the costs, the contractor must also be able to prove the delay caused by the ‘relevant matter’ directly impacted them.

The costs that the contractor incurred need to be demonstrated, and evidence is required to show that these costs were a direct result of the delay. There needs to be no doubt that had the delay not occurred, the contractor would not have incurred the claimed prolongation costs.

In addition to the prolongation costs being tied to an extension of time and the contractor providing proof about the actual incurred costs, he/she also needs to distinguish the costs caused by the delay and the costs that were caused by the contractor’s own errors, as these are not recoverable.

Example one: Subcontractor delay

If a subcontractor delayed a project by six weeks, and the main contractor incurred additional site management costs, the main contractor wouldn’t necessarily be eligible for prolongation costs.

Under most contracts, this delay would fall under the main contractor’s responsibility. Therefore, it would be his/her delay and he/she would be liable for liquidated damages with no entitlement to prolongation costs.

The subcontractor might be entitled to prolongation costs if he/she can prove that the main contractor caused the delay.

Example two: Client delay in approvals

If a public-sector client took longer than agreed to issue essential approvals, the contractor might need to keep site staff, supervision teams and hired plant on site for the extended period. These are time-related costs caused by the delay of the public-sector client.

This means that the contractor might be able to recover prolongation costs, as long as they can demonstrate that the client’s late approvals caused the delay and that they are entitled to an extension of time under the contract.

However, in this example, the contractor would need to prove the actual costs incurred and demonstrate that they arose directly from the delay event, and not from other causes.

Prolongation costs are frequently contested for a number of reasons, which is why evidence and proof are your best friends (but more on that later!).

Here are some of the most common reasons why prolongation costs are challenged:

A lack of records – Contractors who claim prolongation costs without the relevant documentation, i.e. daily records or cost evidence, often experience difficulty receiving their money. Without the proof, claims can’t be sufficiently supported and will usually be contested.

Disagreement over delay cause – Employers and contractors don’t often see eye to eye when it comes down to who caused the delay. Identifying causation is crucial if you want your costs to be recovered.

Misinterpreted contracts – The employer and/or contractor can misinterpret the contract and what they are actually entitled to. This highlights the importance of reading and understanding the contract before signing it.

At Novus Resolve, we help all parties find clarity with their contracts and rights with our Dispute Resolution services. With our Dispute Resolution services, we can help you identify delays and their impact, provide accurate prolongation cost assessment and give you clear, expert reports to strengthen your claim and offer support to you throughout your projects.

One of the best ways to deal with prolongation costs and associated disputes is to seek expert help. That said, there are some proactive steps you can take to avoid and minimise these types of disputes, which include:

1. Records, records and more records
   Yes, it’s cliché, but it is your best bet at avoiding and minimising disputes. If you keep contemporaneous records, such as site diaries, timesheets, plant allocation logs, progress photos, approvals and cost statements, you are in the best position to demonstrate any potential prolongation costs.
   
   
2. Clear contracts
   Make sure your contract explicitly defines delay events, notice requirements and cost recovery terms. And if you don’t understand any terms or clauses, ask an expert to read over your contract to ensure you aren’t signing any unfavourable obligations that could limit your rights or increase your risk if delays occur.
   
   
3. Issue delay notices early
   You can minimise prolongation cost disputes by issuing any delay notices as soon as possible. Most forms of contract require formal notices to be issued within prescribed time limits to preserve your claim, so make sure you document delay events as soon as they arise.
   
   
4. Transparent communication
   Ensure that all parties are kept informed throughout the project. Transparent communication between the client and main contractor can prevent claims from arising in the first place, and calm conversations are always better than chaotic confrontations.
   
   
5. Engage expert advisers early
   With so many plates spinning and stakeholders involved in the process, sometimes it’s not possible to eliminate all risks, which is where a professional advisor can help you. And the best time to reach out to us is early on in the prolongation cost assessment process or dispute, because we can then help you prepare accurate valuations and substantiated claims.
   

Prolongation costs can quickly spiral, especially if they aren’t handled properly. They are also one of the most contested issues in construction disputes. The difference between a successful prolongation costs claim and an unsuccessful one falls down to three things: evidence, clarity and expert insight.

At Novus Resolve, we can help you successfully and seamlessly navigate the complexities of delay claims.

With our experienced consultants guiding you through the entire process, including evidence, contract terms and negotiation, you can stay on schedule and receive what you’re entitled to.

Are you looking for tailored support for your prolongation costs?

Contact our Dispute Resolution team today.