Building a Prolongation Cost Claim That Survives Scrutiny

Entitlement gets the attention; quantum loses the money. A contractor can hold a granted extension of time for a compensable cause and still watch its prolongation claim shredded — because the costs were derived from tender rates instead of actuals, claimed for the wrong period, padded with a formula overhead figure nobody can defend, or double-recovered against variation margins. This is the quantum discipline, with workings.

Principle one: actual costs, actually incurred

A prolongation claim compensates loss — it is not a re-rating exercise. The starting point, consistent with the SCL Delay and Disruption Protocol and orthodox practice, is the actual time-related cost incurred because the project ran longer: not the preliminaries rate in the contract sum, not the tender allowance, but what the delay genuinely cost. Tender allowances have limited relevance; the cost records carry the claim.

The recoverable heads are the genuinely time-related ones: site supervision and staff, site facilities and services (sheds, fencing, power, water, IT), standing or retained plant, site-specific insurances and securities held longer, and — where proved — escalation pushed into costlier periods and financing/holding costs (recoverable in principle in Australia on Hungerfords v Walker (1989) 171 CLR 125 reasoning). Fixed one-off costs (mobilisation, establishment) don't belong; they were incurred regardless.

Principle two: the right period

The Protocol's core principle — and the most commonly violated rule in prolongation practice — is that compensation is assessed by reference to the period when the effect of the delay was felt, not the extended period at the end of the job. A four-week compensable delay in month 3 is quantified from month 3's actual time-related cost run-rate (when the site was fully staffed), not from the cheaper, demobilising tail months the project gained at the end. The difference is routinely 30–50% of the claim, in either direction. Window the costs to the delay events.

A worked example (illustrative)

A compensable delay of 20 working days is established in a period when the site records show actual time-related costs of:

| Head | Records source | Daily rate | 20 days | |---|---|---|---| | Site staff (PM, engineer, supervisor, admin) | payroll/cost report | $4,820 | $96,400 | | Site establishment (sheds, services, IT) | supplier invoices | $1,140 | $22,800 | | Standing plant (tower crane + hoist, net of de-hire options) | plant ledger | $2,350 | $47,000 | | Securities/insurances extension | bank/insurer advices | $310 | $6,200 | | Site prolongation | | $8,620 | $172,400 |

Each line traces to a document; each rate is the actual cost in the affected window; plant is claimed net of mitigation (could it have been de-hired?). That traceability — not the arithmetic — is what survives scrutiny.

Head office overheads: the formula trap

The contested head is head-office overheads and profit: the argument that the delayed project tied up the contractor's organisation, preventing it from earning contribution elsewhere. Three formulas circulate — Hudson (tender OH&P percentage applied over the delay), Emden (the contractor's actual organisation-wide overhead percentage from its accounts), and Eichleay (overheads allocated to the project pro rata by billings, converted to a daily rate).

Treat them honestly or not at all. The Protocol's position is blunt: formulas may be used with caution, only after the contractor demonstrates it actually suffered unabsorbed overheads and lost the opportunity to earn contribution elsewhere — and "the use of the Hudson formula is not supported", because it double-counts (the contract sum it is applied to already contains OH&P, so OH&P is counted twice). The common-law standard, per Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC), requires proof on the balance of probabilities that, but for the delay, the contractor would have secured work generating the claimed contribution. Australian courts are sceptical in the same direction — a formula can evaluate a proven loss; it cannot prove one.

So the head office claim is built from evidence first: tendering records showing opportunities declined or not pursued during the delay window, capacity constraints, management time records showing key staff locked to the delayed job. Then a formula — Emden or Eichleay, not Hudson — converts the proven loss to a number.

Principle three: design out double recovery

The respondent's quantum expert will hunt three overlaps, so remove them first. Variations: where variation pricing included time-related preliminaries or OH&P margins for the same period, the prolongation claim must credit them — and where a variation was priced to include its own delay costs (legitimate in principle: Lucas Earthmovers Pty Ltd v Anglogold Ashanti Australia Ltd [2019] FCA 1049), those days can't be claimed again. Disruption: prolongation (time-related cost of a longer project) and disruption (productivity loss within activities) are different losses — claim both only with costs segregated so nothing appears twice. Acceleration: costs of accelerating to mitigate a delay cannot be recovered alongside the prolongation they avoided; one or the other, with a credit.

What this means in practice

1. Build the daily rate from the affected window's records — payroll, supplier invoices, plant ledgers — and exhibit them. A claim that says "preliminaries: $X per day per the contract" announces its own weakness.
2. Window the claim to when the delay was felt. Map each compensable delay to its period and cost that period. End-of-job costing is the first thing a competent respondent attacks.
3. Mitigation is part of quantum. Standing plant that could have been de-hired, staff who could have been redeployed — claim net of what a reasonable contractor would have saved, and show the consideration.
4. Make the head-office claim earn its place. No proven lost opportunity, no head-office head — a modest, evidenced claim beats an ambitious formula number that invites the tribunal to doubt everything else.
5. Run the double-recovery audit before the respondent does. A one-page reconciliation — prolongation vs variation margins vs disruption vs acceleration — filed with the claim, converts the standard attack into a strength.

Key takeaways

• Prolongation is quantified from actual time-related costs in the period the delay was felt — not contract rates, not end-of-job costs.
• Recoverable heads: site staff, facilities, standing plant, extended securities, proven escalation and financing (Hungerfords v Walker).
• Head office overhead formulas evaluate, never prove: demonstrate unabsorbed overheads and lost opportunity first; avoid Hudson.
• Credit variation margins, segregate disruption, reconcile acceleration — double recovery is the standard attack, so audit it out.

This article is general information only and is not legal advice. For advice on a specific contract or dispute, seek legal counsel or contact Sumit Consulting for commercial and claims advisory support.