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Presentation is trying to define the intent , content, methods and scope of arbitration and tendering and its implications for the architectural practice.
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The presentation has prepared as per the syllabus of Mumbai University.
Go through the presentation, if you like it then share it with your friends and classmates.
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Types of Contract in Construction ManagementShahin MB
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Types of Contract in Construction Management
Lump Sum Contract
Cost plus Fixed fee
Cost plus bid fee contract
Guaranteed Maximum
Negotiated
Unit price Contract
Design build
turn key contract
Site organisation in Construction is one of the major things, that needs major attention for effective running of Construction Projects. How can we use Construction technology to improve site organisation.
Here is the some basic information regarding Tunneling & Rock Drilling Equipments which I have collected from different resources (Internet,Professors,Experts,Engineers,Companies etc). It would be very helpful for M.Tech students of Construction Engineering & Management.
-RAJARSHI
Tunnelling is a serious engineering project.
In addition to large investment cost, the challenges related to long and deep tunnels are considerable.
Important aspects which needs to be considered are related to the construction works, geology, environment and operation. his module highlights all these aspects.
This paper was written in 2001 as part of the CEPMLP's LLM in Petroleum Law and Policy program. It examines the main contractual components of a typical BOT arrangement and the terms that should be included to enhance bankability.
We are delighted to welcome you to the first edition of Systech
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Assessing Loss And Expenses Claim By Prolongation Cost
1. ASSESSING LOSS AND EXPENSES CLAIM BY
PROLONGATION COST
RAIHA AZENE BINTI RAMLI
UNIVERSITI TEKNOLOGI MALAYSIA
2. ASSESSING LOSS AND EXPENSES CLAIM BY PROLONGATION COST
RAIHA AZENE RAMLI
A project report submitted in partial fulfilment of the
requirement for the award of the degree of
Master of Science (Construction Contract Management)
Faculty of Built Environment
Universiti Teknologi Malaysia
JANUARY 2015
3. iii
To my beloved husband, parents, sisters and brothers
Thank you for your support and confidence in me.
4. iv
ACKNOWLEDGEMENTS
First of all, I would like to say thank to all the lecturers for the program of
Master of Science (Construction Contract Management), especially my supervisor â
Assoc. Sr. Prof Dr. Maizon Hashim, for their guidance during the writing of this
master project. Without their supervision and advice, this project could not be
completed on time.
Secondly, I would like to express my gratitude to my dearest husband,
parents, brothers and sisters for their support and advice during these few months.
Not forgetting my classmates, a token of appreciation goes to them for giving
lots of advice on how to complete and write this project.
5. v
ABSTRACT
Contractorâs claims for loss and expenses have long been a contentious issue on
many building contract. Claims are usually resolved during the final account process,
but where negotiations fail, they frequently become disputes, with the parties
adopting legal route to resolve their differences. Claims to recover prolongation cost
arise in a number of contexts and it is importance for the claimant to understand the
principles upon which such claims might be evaluated. In valuing the loss and
expenses claim by prolongation cost, it is fundamental to prove delay and actual
related cost losses arise in an action of damages and failure to prove will not entitle
to a claim for damages. The objective of this study is to determine loss and expense
claims that is related to prolongation cost by head of loss claims. The head of loss
claims include site overheads, head office overhead, loss of profits, interest and
financing charges, loss of productivity and cost of preparing the claim. The loss
should be measured at the point in time in which the delay event arose, rather than
costs incurred at the end of contract. In valuing prolongation costs, the decision in
Costain v Haswell therefore provides a useful reminder of the importance of
distinguishing costs generated by time and by volume. This study was carried out
mainly through documentary analysis of law journals. The study also helps in adding
to the knowledge base of the literature on prolongation costs and construction
contracts.
6. vi
ABSTRAK
Tuntutan kontraktor untuk kerugian dan perbelanjaan telah lama menjadi
isu pertikaian di dalam kontrak secara amnya. Tuntutan biasanya diselesaikan semasa
proses akaun muktamad, tetapi jika rundingan gagal, mereka sering menjadi
pertikaian, maka penyelesaian secara undang-undang digunapakai bagi percanggahan
yang berlaku. Tuntutan untuk mendapatkan kembali kos pemanjangan timbul dalam
beberapa konteks dan ia adalah penting bagi pihak yang menuntut untuk memahami
prinsip-prinsip di mana tuntutan itu mungkin dinilai. Dalam menilai kerugian dan
perbelanjaan tuntutan dengan kos pemanjangan, ia adalah asas untuk membuktikan
kelewatan dan kos kerugian sebenar yang berkaitan timbul dalam sesuatu tindakan
kerosakan dan kegagalan untuk membuktikan tidak memberi hak kepada tuntutan
ganti rugi. Objektif kajian ini adalah untuk menentukan kerugian dan perbelanjaan
tuntutan berkaitan dengan kos pemanjangan berdasarkan kepada âhead of claimsâ.
Tuntutan kepada head of loss claims termasuklah site overheads, head office
overhead, loss of profits, interest and financing charges, loss of productivity dan cost
of preparing the claim. Kerugian dan perbelanjaan haruslah diukur berdasarkan
kepada masa di mana kelewatan itu timbul daripada kos yang ditanggung oleh pihak
Kontraktor pada akhir kontrak. Dalam menilai kos pemanjangan, keputusan di dalam
kes Costain v Haswell itu memberi satu peringatan penting dimana perlu
membezakan kos samaada melalui time dan melalui volume. Kajian ini telah
dijalankan terutamanya melalui analisis dokumentari jurnal undang-undang. Kajian
ini juga membantu dalam menambah ilmu pengetahuan terhadap kos pemanjangan
dan kontrak pembinaan.
7. vii
TABLE OF CONTENTS
CHAPTER TITLE PAGE
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENTS iv
ABSTRACT v
ABSTRAK vi
TABLE OF CONTENTS vii
LIST OF TABLE xi
LIST OF FIGURE xii
LIST OF CASES xiii
1 INTRODUCTION
1.1 Background of Study 1
1.2 Problem Statement 3
1.3 Objective of Research 5
1.4 Scope of the Study 5
1.5 Significance of the Study 5
1.6 Organization of Chapters 6
1.6.1 Chapter 1: Introduction 6
1.6.2 Chapter 2: Loss and Expenses 6
1.6.3 Chapter 3: Prolongation Cost 7
1.6.4 Chapter 4: Research Methodology 7
1.6.5 Chapter 5: Assessment Loss and
Expenses Claim by Prolongation Cost
8
1.6.6 Chapter 6: Conclusion and
Recommendation
8
8. viii
CHAPTER TITLE PAGE
2 LOSS AND EXPENSES
2.1 Introduction 9
2.2 The Concept of Loss and Expenses Cost 12
2.3 Ground for Contractual Claims 13
2.3.1 Loss and Expenses under Standard
Form Provision
13
2.3.2 Notice requirements 17
2.3.3 Nature and form of notice/application 18
2.3.4 Conditions precedent and the failure to
give notice/application where the terms
of contract require it.
20
2.4 Quantification of Claims 23
2.5 Assessment of Loss and Expenses Claims 24
2.5.1 Additional Preliminaries 25
2.5.2 Labour Disruption 27
2.5.3 Material 29
2.5.4 Inflation 31
2.5.5 Head Office Overheads and Profit 31
2.5.6 Interest and Financing Charges 34
2.6 Conclusion 35
3 PROLONGATION COST
3.1 Introduction 37
3.2 Evaluating Prolongation Costs 41
3.2.1 The difference between claims for an
extension of time and prolongation cost
41
9. ix
CHAPTER TITLE PAGE
3.3.2 The difference between prolongation
costs arising from critical and non-
critical delays
43
3.3 Principle to Claim to Recover Prolongation Cost 46
3.4 Quantification of Prolongation Costs 48
3.4.1 On-Site Overhead 50
3.4.1.1 Actual cost 52
3.4.1.2 Estimated Cost 53
3.4.2 Off-Site Overheads 53
3.4.3 Subcontractorsâ prolongation cost 55
3.4.4 Financing Costs 56
3.4.5 Cost related to claim preparation 56
3.4.6 Loss of profit opportunity 58
3.5 Conclusion 59
4 RESEARCH METHODOLOGY
4.1 Introduction 61
4.2 Methodology of Study 61
4.3 Limitations of the study 65
4.4 Conclusion 66
5 ASSESSMENT OF LOSS AND EXPENSES BY
PROLONGATION CLAIM
5.1 Introduction 67
5.2 Head of Loss Claim in Prolongation Cost 69
5.2.1 On-Site Overhead 70
10. x
CHAPTER TITLE PAGE
5.2.2 Off-site Overhead 75
5.2.3 Loss of profits 78
5.2.4 Interest and financing charges 81
5.2.5 Cost of preparing the claim 85
5.3 Conclusion 89
6 CONCLUSIONS AND RECOMMENDATIONS
6.1 Introduction 90
6.2 Summary of Research Findings 90
6.3 Problem Encountered During Research 95
6.4 Further studies 95
6.5 Conclusion 96
6.6 Recommendation 99
REFERENCES
11. xi
LIST OF TABLE
TABLE NO. TITLE PAGE
2.1 Example of a Calculation of a Disruption Claim 29
13. xiii
LIST OF CASES
NAME OF CASES PAGE
Ascon v McAlpine(1999) 66 Con LR 119, (2000) 16 Const LJ 316
(TCC)
74,75,92
Bremer Hadelsgesellschaft mbh v Vanden Avenne Izegem [1978] 2
LJoyds Rep 109
22
City Inn Limited v. Shepherd Construction Limited [2007] CSOH 190 44
Costain Limited v. Charles Haswell & Partners Limited
[2009] EWHC 3140 (TCC)
42,70
Ellis-Don Ltd v Parking Authority of Toronto (1978) 28 BLR 98 33
F.G.Minter Limited v Welsh Health Technical Services
Organization[1980] 13 BLR 1
14
Hadley vs. Baxendale (1854) 9 Ex 341 10,14,15,
35,69,82
John Doyle Construction Limited v Laing Management (Scotland)
Limited [2004] BLR 295
45
J Crosby & Sons Ltd v Portland UDC (1967) 5 BLR 126 13
James Longley & Co Ltd v South West Regional Health
Authority(1984) 25 BLR 56
57
JF Finnegan Ltd v Sheffield CC (1988) 43 BLR 124 33,76,93
London Borough of Merton v Stanley Hugh Leach [1985] 32 BLR 51 19,21
14. xiv
NAME OF CASES PAGE
Merton LBC v Stanley Hugh Leach Ltd (1985) 32 BLR 51. 13
Peak Construction Ltd v McKinney Foundations Ltd. [1970] 1 BLR
111
32,79,93
President of India v La Pintada Cia Navegacion SA [1985] AC 104. 34
Rees & Kirby Ltd v Swansea CC(1985) 30 BLR 1 34.82,84.93
Robinson v. Harman 1 Exch. 850 15,89
South Australia Asset Management Corporation v. York Montague
Ltd [1996] 3 All ER 365
16
Sunley Ltd v. Cunard White Star Ltd [1940] 1 KB 740 76,78
Wraight Ltd v P H & T (Holdings) Ltd (1968) 13 BLR 26 23,80
Wood v Grand Valley Railway Co., (1913) 30 O.L.R. 44 28
15. 1
CHAPTER 1
INTRODUCTION
1.1 Background of Study
A contractor is entitled to payment for works including variations and may
also entitle to claim for additional time and money.1
There is no legal significance of
the term prolongation claim. It is not a type of claim described by the law and is
often called a delay claim. Many times it is also known as disruption claim. Only the
contractors and subcontractors can make this claim, not the Employer2
. This claim
intends to allow the contractor to gain compensation in terms of money, if at all there
is a compensable delay that actually stops or hinders the contractor from completing
the work on time. The claim is made underlying the delay factors in which the
contract was prolonged or the completion of the project was delayed, that is, the
work took longer time by the contractor in completion than it was anticipated by the
contractor at the time when the contract was made.
Most of the contracts are developed clearly underlining on the agreement that
the contractor will finish the work within the given time-period. Furthermore, it
1
Murdoch, J.R. and Hughes, W. (2008) Construction Contracts: Law and Management, 4th ed.
Taylor and Francis, Oxford
2
Davenport, P. (2006). Construction Claims. Federation Press. pp.126
16. 2
implicitly emphasizes on the requirement that the client will ensure that he/she avoid
in delaying the work of the contractor3
.
However, delays do occur in a number of construction contracts, where there
is an implicit and understood the requirement of compensating the party that has
suffered the loss. Due to these delays, it becomes obvious that the contract will not
be completed on time. As a result, the assessment of delays in contracts leads is
necessary, which involves identification of the specific cause for each delay,
followed by the assessment of the extent to which the delay has occurred and lastly,
attributing the responsibility of the delay4
. It is clearly stated that to assess the extra
payment due to the delay as a consequence of Employers prolongation, the
assessment of the claim must be related to the time when the act of delay occurred
and should not in exceed time of the contract. A simple example as follow:
âIf party A tends to suffer a loss due to a delay caused by party B, then party
A is entitled to claim for the compensation of the damages in order to put
party A back into the position in which he was before the act of delayâ.
Therefore, prolongation costs would be the costs that are actually incurred
from the time when delay occurred and started affecting the progress of the contract,
instead of the time extended for completing the contract. What should be considered
is the impact of delay on the progress, and it leads to have a clear assessment of the
impact of the delay for determining the additional overhead expenses and costs that
has been incurred5
.
This claim could be charged on when, and if, the project is prolonged or
extended beyond the anticipated completion time because of the delay in the progress
3
Ibid, pp.126
4
Ndekugri, I., Braimah, N., and Gameson, R. (2008). Delay Analysis within Construction Contracting
Organizations. J. Constr. Eng. Manage., 134(9), p.1279
5
Lo, T., Fung, I., and Tung, K. (2006). âConstruction Delays in Hong Kong Civil Engineering
Projects.â J. Constr. Eng. Manage., 132(6), p.636
17. 3
of the work and activities and as a result the Contractor is required to employ extra
resources over and above the actual allowed price of the contract. Nevertheless,
there are some resources that could be extended with the span of original contractual
period due to some variations. These extended resources must be reimbursed to the
Contractor for further progress.
1.2 Problem Statement
In any construction projects, the contractor is legally obligated to complete
the project within the date set for completion or by the date that is set in the contract.
However, delays always tend to disrupt and disturb the performance of the work
performed by the contractor. This delay might be cause of either by the employer or
by the contractor himself or due to the events for which none of the party is
responsible.
As for delays or disruption caused to the Works, if these are caused through
some act or omission of the Employer or his agent (perhaps the architect, engineer or
the Superintending Officer) then contracts often allow the contractor to recover his
costs arising from the delay or disruption, again in the form of loss and expenses.6
Any claim for loss and expenses must be calculated on the basis of the actual
loss incurred. It is not unusual to see prolongation costs calculated on the basis of
sums derived from contract preliminaries. This is clearly incorrect as the figures
included in the contract are essentially estimates. Using the contract preliminaries is
unlikely to represent the true loss suffered by a contractor in the event of delay.7
6
Michael Charlton et al., Seminar Paper: Additional Payment under Malaysian Forms of Contract,
2001. p.1/34
7
Ibid. p.2/34
18. 4
Having established the legal right to pursue a claim for loss and/or expense
and satisfied all the relevant procedural requirements, it is obligatory for the claimant
to identify with suitable precision the respective heads of loss claim entitlements that
need to be quantified and substantiated. The principal common areas of such claim
usually encountered in practice as follows:8
a. Site Overheads;
b. Head Office Overheads;
c. Loss of Profits;
d. Interest and Financing charges;
e. Loss of Productivity;
f. Inflationary Cost Increase of Materials and Labour; and
g. Cost of Preparing the Claim.
A typical claim for loss and/or expenses depends on the nature of the delay or
disruptive element. It may encompass either one, or all, or a number of the above-
listed heads of entitlements. Much also depends upon the relative strength of the
particular case in terms of the quality of proof (example: records and documents)
available in justification of the particular entitlement or entitlements. Though some
of the said entitlements appear relatively straight forward, these are nevertheless
fraught with legal uncertainties where the ultimate decision is swayed more by
subjective factors than objective considerations. Hence, the subsequent write-up
expands upon the scope of some of the rather contentious areas of the claim for
entitlements so as to shed some light for better understanding.
8
Ir Harban Singh KS. (2007). Demystifying direct loss and/or expense claims. Malayan Law Journal
Articles/2007/Volume 4/DEMYSTIFYING DIRECT LOSS AND/OR EXPENSE CLAIMS. 4 MLJ
xxix. P.
19. 5
1.3 Objective of Research
Following is the objective of the study:
1. To determine potential heads of loss claim under loss and expense claims
due to prolongation cost.
1.4 Scope of the Study
This research will focused at relevant research papers, articles, books,
journals and court cases on loss and expenses claim on prolongation cost in heads of
loss claims in any jurisdiction. The court cases will not be restricted to Malaysian
cases only; reference is also made to cases in other countries such as United
Kingdom, United States, Canada and Hong Kong. The scope of the study is wide
enough to incorporate different cases, demonstrating a broader view of the research
topic.
1.5 Significance of the Study
Claims to recover prolongation costs arise in a number of contexts and it is
some importance for parties to understand the principle upon which head of loss
claims might be evaluated. The study helps in adding to the knowledge base of the
literature on loss and expenses claims and prolongation costs under construction
contracts. This study is to reduce the uncertainty and difficulties in the event of
20. 6
claiming loss and expense that are deny under the reason upon the relative strength
of the particular case in terms of the quality of proof available in justification of the
particular entitlement or entitlements. Though some of the said entitlements appear
relatively straight forward, these are nevertheless fraught with legal uncertainties
where the ultimate decision is swayed more by subjective factors than objective
considerations. Hence, construction industry stake holders will be more aware and
clear understanding while dealing with heads of loss claims in contracts.
1.6 Organization of Chapters
1.6.1 Chapter 1: Introduction
The first chapter provides an overview of the research, including a brief
background of the topic along with describing brief concept of prolongation costs,
claims and delays, the problem that is focused in the research, the objectives that will
be achieved through literature study analysis. In addition, the section includes scope
of the study and the significance of the study.
1.6.2 Chapter 2: Loss and Expenses
In the second chapter, literature review on loss and expenses claim have been
studied to identify the contractor entitlement to recover loss and expenses claim
affected by specific events as set out in the relevant clauses and standard form of
contract. The assessment for contractor claims for loss and expenses perhaps most
argumentative issue in the post-contract financial management of building contract.
21. 7
However, the recovery of loss and expense is a procedure under specific term
of the contract. The recovery of certain heads of claim may be permitted under
express contract terms which might not be recoverable as a claim for damage at
common law. A careful study of contract condition and appreciation of their legal
application and knowledge of the relevant case law has also been collected and
reviewed in this chapter.
1.6.3 Chapter 3: Prolongation Cost
In the third chapter, literature review for the prolongation cost has been
studied to substantiate the entitlement of the heads of loss claim. Contractually or
legally the contractor must prove his claim in order to have sufficient merit to
warrant certification of appropriate amount of entitle of the heads of loss claims.
Commonly the entitlement of head of loss claim brought under the following heads:
1) On-site overheads
2) Head office overheads
3) Interest and Financing Costs
4) Loss of Profit
5) Cost related to claim preparation
1.6.4 Chapter 4: Research Methodology
In the fourth chapter, the methodologies of this study has been separated into
few steps, namely identifying the research issue, literature review, data collection,
research analysis, and conclusion and recommendation. This approach is to ensure
22. 8
that the collection of the information and the data analyzing can be precisely
implemented.
1.6.5 Chapter 5: Assessment Loss and Expenses Claim by Prolongation Cost
The fifth chapter provides analysis of different case studies by critically
reviewing and clarifying all the facts of the case studies. Furthermore, this chapter
will present, discuss and compare each issue identified from the case study in
accordance to the objectives of the research.
1.6.6 Chapter 6: Conclusion
Lastly, the sixth chapter will provide a discussion of the overall research
findings relating them with the objectives of the study. Moreover, this chapter will
also provide recommendations for the future study and limitations of the study.
23. 98
REFERENCES
Aibinu, A. A. (2007). âConstruction project claims and conflict in Singaporeâ,
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