Solving the Time-Cost Continuum

Why does an extension of time not automatically entitle a contractor to prolongation costs?

A contractor often believes that an extension of time also entitles him to damages or compensation for being kept on site longer than agreed.  However it has been held in the UK courts that the sole purpose of an extension of time is to relieve the contractor of the obligation to pay liquidated damages for the whole or part of the overrun period.

To establish an entitlement to prolongation costs, a contractor must demonstrate that a delay to completion of the contract has occurred and the cause of the delay is an action or inaction of the employer which amounts either to a breach of contract or is an event for which the contract specifically provides an entitlement to extra payment for the contractor.

If the contract specifically provides for the contractor to recover his costs in the event of certain specified events and the event that has caused delay is one of those specified then he can recover under the contractual mechanism.  If the contract does not specifically provide for the contractor to recover his costs or it does but the event that has occurred is not one of those specified in the contract then the contractor’s remedy will lie in a claim for breach of contract.

A claim for breach of contract will require proof of causation i.e. that the action or inaction of the employer actually caused the loss.

The UK cases quoted are persuasive only rather than binding but there is nothing in the UAE Civil Code or Sharia law which would preclude the payment of damages if set out in the contract , as long as they were reflective of the actual loss rather than punitive or compensation for a future possible gain.

It should be borne in mind that if the amount was not representative of actual loss it is open to the courts to amend the figure up or down so that the damages reflect the actual loss incurred.

It is suggested that if the contract is silent on the question of recovery of costs arising from delay then the Sharia principles of fairness and equity may lead a court to consider that a party should be liable for the consequences arising from their default, i.e. the costs incurred as a consequence of the action of the employer.

But what about the situation where there is more than one cause of delay at any one time? Unhelpfully, there is a lack of any uniformly accepted view among practitioners regarding concurrent delay and how it should be treated, both for extensions of time and prolongation costs.

One point worthy of comment however is the position taken under the SCL Protocol.  With regard to extensions of time, the Protocol states that provided one of the causes of delay in any given concurrency situation affords grounds for extension of time under the contract, the contractor should be given a time extension notwithstanding any contemporaneous default on his part.

Interestingly, in the context of prolongation costs the Protocol states that recovery of prolongation costs in the situation where there is both employer and contractor delay will be only for the costs arising solely from the employer delay and will depend on the contractor being able to separate the costs of the employer delay event from those of the contractor delay event.

Thus it is arguable that the Protocol sets the threshold for recovery of prolongation costs at a higher level than that required for an extension of time as, in practical terms, it is suggested that there would be significant difficulties in separating out losses arising from ‘contractor’ and ‘employer’ delays.

The potential to recover costs for non-critical delay also exists.  However delay costs arising from non-critical elements of work, which do not lead to delays to completion of the works overall, would normally be regarded as loss of productivity or disruption costs.  The same principles for recovery of the costs would apply except it would not be possible to recover any contribution to overhead or overall project costs, only costs specific to the element in delay.

It has been mooted by the SCL that contracts should contain a provision setting out an agreed amount per day that can be applied to each day of prolongation.  In other words the reverse of the Employer’s liquidated damages provision.  Anything which may reduce the likelihood of dispute must be worthy of consideration.

In summary the reason an extension of time does not automatically entitle a contractor to prolongation costs is that entitlement to recovery of costs associated with delay does not flow from the same contractual entitlement as time.  Cost recovery will depend on there being either a specific contractual provision allowing recovery of prolongation costs or the contractor being able to prove that the delay was a breach of the contract by the employer and that the breach actually caused the costs claimed.

Clearly in this instance, to paraphrase Benjamin Franklin, time is not the same as money.


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