Red Pill or Blue Pill?

16/07/2021

A quote taken from a favourite film of mine; The Matrix (…not sure about the sequels though!). where Morpheus offers Neo two paths depending upon which pill Neo decides to take. The red pill offers the opportunity to learn a potentially unsettling truth (“you can’t handle the truth” – Ed !!), whilst the blue pill will result in remaining in contented ignorance. Obviously, it would have been a bit of a short film had Neo taken the blue pill, however it is a concern how many Contractors and Sub-Contractors seem to have swallowed a healthy dose of the blue pill when it comes to recovering prolongation costs.

Those of us who have swallowed the metaphorical red pill, will be aware that Contractor’s entitlement to additional time does not automatically result in entitlement to additional money, and vice versa. If a project is in delay and over budget, establishing time entitlement is only half the battle. The monetary assessments produced by many Contractors still falls some way short of the necessary demonstration which would be required if the matter was heard in front of a third party.

Whether working in a capacity to advise the Employer, the Contractor, or the Sub-Contractor we at Pyments are still finding we have to make assessments and / or adjust entitlement papers which demonstrate a seemingly contented ignorance when it comes to prolongation costs. As we know, claims for prolongation costs would typically include the cost of time related resources expended by the Contractor / Sub-Contractor and which can be generally categorised as (i) Site Management; (ii) Accommodation; and (iii) Plant and Machinery. These types of costs are typically referred to as Preliminaries.

The calculation for additional Preliminaries is often confused and we see a number of instances where tender rates are applied as opposed to the actual cost incurred and / or the period of additional Preliminaries being applied for has been assessed during the period between the original completion date and the actual completion date. In such instances, just like Neo, it is important to unplug and enter the real world!

The general principle one must apply when calculating prolongation is that the purpose is to compensate and not reward; therefore, the objective is to put the Contractor / SubContractor in the same financial position it would have been in had the prolonged period on site not occurred. Compensation for prolongation should not be paid for anything other than work actually done, time actually taken up or loss and / or expense actually suffered. In other words, the compensation for prolongation caused other than by variations is based on the actual additional cost incurred by the Contractor / Sub-Contractor.

To find out more, click here to read the full article.

By Alan Powell, Senior Quantity Surveyor/Programme Analyst at Pyments

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