Claim for Extension of Time (EoT) and Associated Cost

Claims are very widespread in the construction industry and very often lead to frustration on the part of the contractor as well as the client

If you have to prepare a claim, you have a lot of work to do and can expect a lot of frustration and unfortunately silly answers. In this short article I want to show you quickly and without wasting too much of your precious time how to prepare a claim for Extension of Time (EoT) and Associated Cost and how to avoid frustration.

There are different types of claims, which are briefly mentioned below for the sake of completeness. However, here I am concerned with the Extension of Time Claim (EoT). EoT claims are based on time delays. Below I go into examples of such time delays. In principle, these are delays for which the contractor is neither responsible nor has control over them.

It is important to follow the rules to increase the chances of success. In principle, there is still a claim, even if some rules were not strictly followed. However, following the rules increases the chances of success, simplifies the claim considerably, and reduces frustration. I'll tell you below what you should do.

To increase your chances of success with your Claim for Extension of Time and to simplify your work download some helpful EoT templates.

As already mentioned, the focus of this article is the Claim for Extension of Time and Associated Cost. But I don't want to go unmentioned that there are also other claim variants.

Common Claim Types:

• Prolongation claims,
• Acceleration claims,
• Disruption claims,
• Damage claims (usually raised by clients & other parties),
• Extension of time claims,
• Variations claims,

An Extension of Time Claim (EOT) is a request to change the scheduled completion date due to a delay beyond the contractor's control. The delay may be caused by natural events, owner delays or other unexpected events as highlighted above.

The process for filing an EOT claim is usually specified in the contract between the client and the contractor. Most often, these conditions require a written notice of delay and an official claim with backup documentation. If the extension is approved, a change order will be issued.

The contractor must notify the client in writing if a delay becomes apparent or has even occurred that could justify or necessitate an adjustment to the schedule baseline. The underlying delay event or the circumstance that may cause a delay must be described including the cause, the liability, and the impact and the extension must be requested. The request should be referenced to the corresponding contractual clause(s).

The request letter is evaluated by the client and leads to a written rejection or a change order. A template for such a notification (also referred to as a Change Request) is included in my EoT template set.

Usually contracts require notifications to be submitted within a certain time, otherwise, they may be denied. Adhering to such deadlines increases the chances of success considerably. Disregard and late filing usually result in lengthy disputes, often involving legal departments.

Detecting delays or disruptions can be a complicated and time-consuming process that needs to be done with great accuracy. The quality of the information provided and the records available are usually the keys to successful claims. The records must be conclusive, logically structured, and presented understandably. The claim must include the cause and the liability, as well as the impact of the delay suffered by the contractor as a result of the delay.

Proving delays in complex projects with schedules containing thousands of activities with many interfaces and many causes of delays and disruptions is a complicated process and involves many details.

Prevented claims are the best claims. To some extend, you can achieve this through good planning, avoidance of assumptions, avoidance of unrealistic promises, and good risk management.

A fair, detailed contract, based where possible on relevant standards such as for example FIDIC, is extremely important for successful project execution. However, this is of little use if the contracting parties do not explicitly adhere to it. Usually, the contract contains a paragraph that obliges the contractor to notify delays in writing within a certain period of time. Although court rulings are known in which later claims were allowed despite the missed deadline, each party should primarily adhere to the contract and thus avoid risks and uncertainties as far as possible.

In addition to compliance with the contractual clauses, good reporting and record-keeping are essential. Timely notifications are of great importance as they allow the client to take corrective action, adopt his own planning or, if necessary, to arrange even an additional budget.

Notification

Notifications should be sent as early as possible. At an early stage, the effects can perhaps be mitigated or even prevented. Notifications should as much as possible include the following information:

• When did the delay-event occur or when is it likely to occur?
• Why did it (will it) occur?
• What are the affected deliverables and activities in reference to the schedule?
• What is the impact?
• What are additional activities that had to (nave to) be carried out as a direct result of the delay-event?
• Sketches, photographs and plans (if applicable),
• How did the contractor prevent/reduce the impact of the delay event?

Risk management plays an important part that supports successful claim management. Every project should have a risk register. The risk register must be updated regularly and thus serves as an early warning system for both the contractor and the client. One thing is clear, the more openly and earlier delays are dealt with, the greater the chances of success in dealing with the consequences or, in the best case, even avoiding them.

From the contractor's point of view, approving the extension of the schedule is usually only half of what it wants to achieve. Time costs money and that is what most claims effectively are about. But what are these costs?

Site Office Costs

Under site office cost, we have several direct expenses. Office cabin rents, electricity bills, consumables, etc. In addition to these direct costs, the contractor can claim the depreciation costs of the computers, printers, scanners and others.

Site Overheads

All salaries and costs of the site management can be claimed as site overheads. In addition to the salary, the contractor can claim paid overtime. The contractor is also entitled to vacation accruals, annual flight lump sums, and construction management services after an extended period of time.

Head Office Overheads

Head office overheads are management and administrative costs of running the contractor's head office. Expenses such as office rent, administration, appraisal and salaries of the accounting department etc. The overhead costs of the head office can be difficult to prove and present. Therefore, common formulas are developed by experts and often used.

Hudson Formula (overhead calculated as per tender)

(head office overheads + profit) ÷ 100 x contract sum ÷ period in (days) x delay in (days)

Emden Formula (overhead derived from audited accounts)

(overheads & profit ÷ 100) x (contract sum x period of delay ÷ contract period)

Finance and Insurance-Related Costs

These are mainly charges for the renewal of bonds and the delayed release of retention moneys. These, too, are usually calculated using standardized formulas.

Bond Renewal Charge

(Bond value x 0.25% x Days extended) ÷ 365

Interest for Delayed Release of Retention

Bank interest [% per annum] x (days delayed ÷ 365) x retention amount

The following is now about creating the claim. At this point, I assume that you have a contract, have adhered to the clauses, especially concerning notification, and hopefully have consequently received a change order. Furthermore, as agreed with the client, you have regularly complied with your reporting obligations.

From my point of view, it makes perfect sense to create the claim in three parts. These are:

• The cover letter,
• The claim document itself, and
• A file with the supporting documents.

The Claim Cover Letter

The cover letter is usually no more than about one DIN A4 page long and explains briefly and concisely what it is about.

The Claim Document

In many cases, a single claim document can contain several claims. This can be the case in particular if the client so wishes, as far as this is in line with the contract.

I advise to not cover more than one claim in a claim document and rather prepare and submit several claim documents, if necessary. The advantage of this approach is obvious. If it is all mixed up, it is more difficult to understand. In that case, or if the customer does not agree with some part, he will probably reject the entire document.

If, on the other hand, the various claims are neatly separated, they can be assessed separately and approved or rejected independently of one another.

Key Elements of the Claim Document

It is important to structure and format the document well. The following key-elemnts should be included:

1. Executive summary,
2. Table of contents,
3. Introduction,
4. Contractual framework,
5. Cause,
6. Effect,
7. Delay analysis,
8. Entitlement,
   1. Site office costs,
   2. Site overheads,
   3. Main office overheads,
   4. Finance and insurance-related costs.
9. Quantification of the claim.

As I said several times, make it easy to understand the document on the one hand, but also to read it. Choose a good font and font size, reasonable line spacing, and a margin that allows the reviewer to add handwritten notes here and there.

Annexes

Of course, the client is in possession of the contract, the claim underlying correspondence, reports, etc., but if you want to be successful with your claim, make it as easy as possible for the client and include copies of all referenced relevant documents. In order not to disturb the flow of reading, these copies should be enclosed as attachments in a separate file.

Individual paragraphs can also be inserted directly into the claim document. However, care must be taken that the flow of reading is not impaired and that, if the paragraph is shown in abbreviated form, its meaning is not falsified.

The claim document is one of those documents in the course of almost every project, which on the one hand requires a lot of work and on the other hand has to be created as professionally as possible in order not to endanger its success. Here you can prove how well you can use MS Word. To ease your life, I have created a template for this purpose that I have already used successfully several times myself. Of course, you can also use your valuable time to reinvent the wheel.

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Exactly following the contractually regulated processes is a recipe for success for the creation and submission of a claim for extension of time.