CONSTRUCTION MEASUREMENT
AND COST MANAGEMENT
6CN023
CLAIMS
1
Direct Loss and/or expense
Delay is fault of EOT L&E
Neither Party Yes No
Employer Yes Yes
Contractor No No
If the delay is the fault of neither party, the main contractor is
entitled to an extension of time (EOT), but is not entitled to
receive any payment for direct loss/expense (L&E)
If the delay is the fault of employer, the main contractor is
entitled to both EOT and L&E
Any costs caused by main contractor for which the main
contractor is responsible will not be allowed as a claim for L/E
Direct Loss and/or expense
It is important to examine the reasons for granting each EOT
which entitles the contractor to financial reimbursement
Items specifically listed within the contract for which the
contractor may claim for additional monies. Normally only
used where the contractor cannot claim for additional money
elsewhere within the contract
Immediate adoption of assumed amounts or theoretical
formula is not in accordance with the Contract
The QS shall ascertain the Actual Cost incurred
2
Common heads of
1. Disruption
2. Prolongation claims
For prolongation claim only :
1. Extended preliminaries (site)
2. Head office overheads
3. Finance charges
4. Increase in cost (Fluctuation)
For both prolongation and disruption claim:
1. Inefficient or increased use of labour and plant
(Disruption cost)
2. Loss of Profit
1. Extended Preliminaries
Prolongation claims should only be restricted to those time-
related items in the preliminaries
It is important that the main contractor shall substantiate
actual on-site establishment cost for checking in lieu of an
assumed on-site cost
Contractor should substantiate their damages equate to
actual proven loss
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1. Extended Preliminaries
The most common items in a L&E claim concern the costs of
running the Site during extended period of construction or
disturbance to the progress of the works. The commonly claimed
items of site cost are as follows:
Managerial, supervisory, technical and clerical staff
Direct labour
Plant
Temporary lighting, power supply and communication facilities
Temporary water supply
Site office, storage sheds
Hoarding, scaffolding and other temporary works
Security and protection measures
Site cleaning, environmental control
2. Head office overhead
Contractors may claim that due to delay or disruption their head office
resources could not be employed elsewhere to earn profit, hence their
head office costs during the delay or disruption period should be
reimbursed
It should be noted that in a period of economic downturn, the
employment of the contractor’s head office resources elsewhere may not
be able to earn a similar level of profit for the contractor to that under the
contract
The reserves is true in a period of economic up-turn whereby the
contractor may claim for profit not earned, but this loss of opportunity to
earn profit is too remote and may not be entertained
Also, if the delay was mainly due to variation, the contractor’s head office
resources could have been employed already to deal with the variations
thereby earning profit through the variation. So the contractor’s
argument of not being able to employ his head office resources
elsewhere in order to earn profit is not sound
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2. Head office overhead
Contractor’s claim for head office overheads
normally includes the following items:
Staff costs
Including director’s remuneration, rents, management fee
Sundry expenditure
Including office equipment, stationery, postage, telephones,
fax etc
Costs of transportation
Including travelling expenses and company’s car
Other professional fees
2. Head office overhead
It is unlikely that delays and disturbance to the progress of works
will result in a marked increase in the contractor’s head office
overheads, except in prolonged delays and extensive disturbance
It is unlikely to incur instantly any extra expense on rents, director’s
remuneration, etc.
No duplication is made on any of the admissible items, such as PM,
CM, QS, clerk, driver etc. These items may have already been
recovered elsewhere in the “Site overheads”
The past 3 years audited accounts can be a useful reference in
assessing contractor’s head office overheads
Contractor normally have more than 1 contract in hand. When
assessing the head office overheads, particular attention should be
paid to whether the overheads claimed is reasonably proportional
to the total head office overheads of the company
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Emden’s and Hudson’s formula
Identify and describe Emden’s formula in comparison
to Hudson’s formula and how they would be applied
to a claim for overheads and profit on a variation
Head office overhead –
Formula approach
The lost opportunity approach is by far the most popular with
contractors, for 2 reasons:
Because the actual costs are so difficult to identify and
prove
Because the lost of opportunity approach uses a formula
for its calculation
A formula calculation is simple, cheap, quick and produces
a reasonable sum of money for very little effort, so
contractor like to use formula to calculate head office
overhead costs
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Head office overhead –
Formula approach (Hudson’s formula)
There are 2 formulae commonly used for such calculations:
Hudson’s formula
Emden formula
Hudson’s formula was first produced by Mr. Duncan Wallace and
published in Hudson’s building and engineering contracts
Hudson’s formula is:
*Head office overhead percentage x contract sum x period of delay
100 contract period
The formula is criticized because it adopts the head office overhead
percentage *from the contract as the factor for calculating the cost,
and this may bear little or no relation to the actual head office costs of
the contract
Head office overhead –
Formula approach (Emden’s formula)
In an attempt to improve upon the Hudson’s formula an
alternative was published in Emden’s building contracts and
practice
The formula has the advantage of using the contractor’s
*actual head office / profit percentage rather than one
contained in the contract
*The overhead and profit percentage is head office
percentage, arrived at by dividing the total overhead cost and
profit of the contractor’s organization as a whole by the total
turnover
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Head office overhead –
Formula approach (Emden’s formala)
Therefore the Emden’s formula is:
Total Overhead Cost x 100 x contract sum x period of delay
Total turnover contract period
Please refer to the notes “The use of formulae in head office overhead
claims in building contracts”
Not accept to use formula approach
Although two formula were used for many years , the court
would not accept a calculation of head office overheads
based upon a simple percentage in recent case
It is necessary to prove actual additional costs incurred rather
than a hypothetical loss of opportunity approach
However, the difficulties of proving the actual additional costs
incurred in respect of head office overhead have recently led
to the court taking a more relaxed view of the degree of proof,
loss of opportunity approach / formula are re-appearing
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Claim
Identify and describe a typical claim for loss and/or
expense along with the supporting documents the
contractor would need to submit to PQS
Claims
The supporting documents the contractor would need to
submit to PQS :
1. Tender and contract documentation
2. Works records sheets
3. Daily record of labour and plant staff
4. Materials received and issued
5. Drawings register
6. Correspondence and minutes files
7. Site diaries
8. Site instructions
9. Variation orders
[Link] works register
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Claims
Identify and describe a typical claim for loss and/or
expense along with the supporting documents the
contractor would need to submit to PQS
[Link]
[Link] programme
[Link] built programme
[Link] (dating facility preferable)
[Link] measurements of 'covered' works
[Link] notifications
[Link] notifications
[Link] orders and invoices
[Link] control
[Link] as above
Analogous rates
Describe the Five processes of breaking down an
existing rate and recalculating the revised rate
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Pro rata and Analogous rates
Step 1:
Establish the percentage addition allowed in the original rate in respect of overheads
and profit (and any other factors) and deduct the corresponding amount from the
rate in order to reduce it to net cost
Step 2:
Identify the resources involved in the operation (LPM) and isolate the unknown
factors by calculating that part of the rate which can be readily verified by way of
invoices, quotations, plant hire rates, etc. (normally the unknown factor will be the
labour element)
Step 3:
Adjust the unknown factor by pro rata (i.e. in proportion) method where applicable
or on some other suitable ad-hoc basis.
Step 4:
Add back the relevant material and mechanical plant element (if applicable), the
nature and cost of which again being suitably adjusted in the light of the changed
circumstances
Step 5:
Add back the original percentage for overheads and profit to produce the new rate
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