Expert: Peter M. Elliott - 1/18/2012

Question
QUESTION: Country: Turkey
Applicable Law: Turkish law
Form of Contract: FIDIC 1999

Dear Peter,
In case of en extension of time due to the Employer, can the Contractor claim the cash flow costs? Let me explain this way:
The Contractor can not get the payment as per the initial payment schedule but can get it as per the payment schedule determined according to EoT and so the Contractor asks to be compensated for this ''delayed'' payment by applying bank rates to the delayed payment.
I do not know if such costs (cash flow costs) are classified as 'indirect costs' or 'consequential loss'. I would more say they are consequential loss. Could you please provide your opinion?
Many Thanks

ANSWER: Dear Canan,

I am not sure that I understand the basis of your claim.  You have to show actual loss in order to make a claim.  I presume that you are not referring to delayed payment of certified amounts.  I presume that you are not borrowing money to cover the reduced income.  I suppose that theoretically you could prove that there has been a reduction in your expected profit and thus you have lost the opportunity to invest this profit, but you would have to prove your actual profit and the borrowing to replace this profit.  

---------- FOLLOW-UP ----------

QUESTION: Dear Peter,
Sorry for my late response but I am dealing with 9 projects at the same time and was very busy due to reviews and travels.
Let me explain to clarify:
We have some milestones which are payment milestones which means that as soon as we finish the activities related to this milesrone, we ask the related payment from the customer.
Because of the time extensions the milestone dates are postponing to the future which means that we can not get the cash-in as planned at the beginning of the project. So our cash flow is effected negatively. We are not borrowing money but use our money to do the activities but we get the compensation late due to time extension.
If such costs are classified as indirect costs (like overheads) I have the right to claim.
If such costs are classifeid as consequential loss, I do not have the right to claim as per 17.6 fo FIDIC 1999.
I hope it is more clear now.

Answer
Dear Canan,

Consequential loss is a common law concept and thus might not be applicable in this case; one of the many problems which arise when employers who do not align their standard conditions of contract with the applicable law.  Clause 17 deals with insurance rather than extension of time and is not really relevant to this situation.  

You can claim actual costs arising out of the Employer's breach of contract.  If you are financing the project out of internal funds, then you have no extra costs.  If you are borrowing money to finance the delayed payments, then you have extra costs and can claim their reimbursement.  From the information above, it appears that you have no actual extra costs and thus cannot claim them.