A lot of people know that delays in certain things have disastrous and troublesome consequences that no one wishes to encounter. In construction, delays forcing extensions of construction projects have serious financial implications for each person involved. Architects, engineering firms, and construction companies along with workers and contractors are impacted.
These financial consequences can have both positive and negative financial results for owners, contractors, architects/architectural firms, and engineering firms. The incidence of delays depends on the cause, effect, and liability for them, and how they can impact things in the long term.
For a lot of owners, construction contracts often contain certain provisions regarding late delivery of projects. They are usually known as liquidated damages.
What are the different kinds of delay factors in construction?
Construction contracts contain provisions for time extensions due to delays created by issues that cannot be foreseen. For contractors, this comes as a sigh of relief. Yet compensation does not necessarily have to be either the reason or cause for any delay.
There are basically two kinds of delay factors. They are excusable delays and compensable delays. The former is often caused by factors like weather, natural disasters, and other acts which are beyond human control.
Whereas the latter is caused by other parties or influences which usually weren’t foreseen by the contractor at the time of the contract being signed. Factors like changes in design, extra work orders, work stoppages, contract modifications, etc. are involved.
The kinds of damages that contractors can recover from – what are they?
Here are the kinds of damages that contractors can recover:
- Extended field overhead.
- Additional materials stored.
- Additional costs of financing and bonding.
- Cost escalation.
- Loss of profit that was anticipated.
- Unabsorbed home office overhead.
- Labor and equipment in idle state.
We will now discuss the important ones which need urgent recovery based on the findings of an authentic quantum analysis Dubai.
Unabsorbed Home Office Overhead
It is a common yet also a more complex delay. Like the extended field overhead, it can be caused by a crucial project delay or extensions in a project’s duration. Home office overhead costs are costs that are incurred to support construction work. They are not directly related to the costs of the work of a specific project. The following comprise such expenses:
- Corporate taxes.
- Home office ownership costs/rental.
- Home office utilities, equipment, and maintenance.
- Insurance costs (especially those that cannot be assigned to a specific project).
- Salaries of home office staff (company officers, payroll clerks, estimators, receptionists etc.)
Here are some formulas which can calculate unabsorbed home office overheads:
- Eichel formula.
- Carteret formula.
- Canadian formula.
- Allegheny formula.
- Fixed percentage approach.
Extended field overhead
This is also known as site overhead. It is that type of delay which can happen due to a critical project delay, or an extended project duration. Field overhead costs consist of indirect costs that are needed to support work in the field. They are also related directly to the job’s costs. Its common components are:
- Field office rental.
- Field office staff vehicles.
- Salaries of field office staff.
- Utilities and consumables of the field office.
Idle equipment and labor
Costs for such can be caused by both crucial and non-crucial delays. Damages because of idle equipment and labor can also arise from owners’ inefficiency along with disruptions and suspensions from the owners’ end too.
Contractors are entitled to recover additional costs of labor or equipment idled by either a stop-work order or during the period waiting for design modifications. The suspension won’t necessarily have to be a critical delay for the contractor to be entitled to payment for this overhead, as explained by dispute avoidance experts.
Escalation of costs
An example of cost escalation: If a contractor’s operation got delayed by a compensable delay from one labor agreement period to the other, and it causes the contractor to pay a higher hourly wage, then they can be entitled to additional compensation.
The same can apply to material acquisition where a compensable delay happened and consequently the materials’ cost is raised during that delay period. Damages resulting from such are often found by calculating the difference between the cost of labor, equipment, or materials the contractor incurred.
Had there been no delay and the actual cost of labor, equipment, or materials, the contractor would have had to pay for performing work later than the original date of start.
A contractor’s recovery of escalation damages can be caused by numerous factors. However, it is often related to either a crucial delay or an extension of a project’s duration.