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Construction Law/Cost Claim -- Idle Equipment due to Suspension of Works caused by Employer's nonpayment

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Question
Dear Sir,

we are working on a water pipeline project in Tanzania, and I am writing to kindly ask you and request for a advice as follows:

Currently our project is suspended due to Employer's nonpayment, and we are claiming the cost of equipment idleness due to the suspension.
In our submissions to the Engineer, we are using the equipment idle hours and the BOQ day work rate to calculate the cost of equipment idleness.

After reviewing our submissions, the Engineer replied that the the calculation of equipment idleness cost by using the BOQ day work rate is not proper because the equipment are parking idle and the BOQ day work rate is for machines running for day works instructed by Engineer, then they are asking for a proper rate to be applied to the equipment idle.

I am verbally discussing with some Engineer that it may be proper to use 50% of the day work rates to calculate the equipment idle in such claims.

Now Can you please advise whether this understanding is correct in Engineering practices in such claims or otherwise. and If yes, can you advice or indicate some Engineering clauses or links to me so that we can use to support our calculation; Because it is not persuasive to Engineer/Employer without paper supporting.

Thanks in advance and looking forward to your reply and advice.

Answer
Dear Zhang,

Thank you for this question.


Daywork rates are intended to be applicable where the work is instructed and is incidental to other work. They are a composite rate inclusive of all costs associated with the item. For owned plant (that is not hired from a third party) and unless specified otherwise, the rate will be deemed to include for:

Capital allowances/Depreciation;
Insurances;
Running costs;
Maintenance charges;
Fuel and oils;
Overhead contribution; and
Profit contribution.

In some cases the driver for the equipment will be included but this is often charged separately.

Where the construction equipment is standing, for ease of negotiation it is often that Parties agree to a somewhat arbitrary adjustment of working rate; however there is no standard applicable. Further it is relatively easy to calculate costs, particularly if the working rate has already been agreed, by subtraction of the elements of the working rate that are not required when the equipment is standing. The working atet may then be adjusted as follows:

Capital allowances/Depreciation - remains the same when not working;

Insurances -  likely to remain the same when not working, although you might check with your insurers;

Running costs - these will not apply when the equipment is standing;

Maintenance charges - an element of maintenance is always required, although it will be less than if the equipment is in regular use;

Fuel and oils - these will not apply when the equipment is standing;

Overhead contribution - this is likely to be applicable but you should check the particular contract clause being relied upon to determine whether overhead recovery is allowed in the circumstances; and

Profit contribution - this is often not allowed when a claim for suspension is made but you should check the particular contract clause being relied upon to determine whether overhead recovery is allowed in the circumstances; .



I hope that this assists you.

Kind regards,
John Dowse
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John Dowse

Expertise

Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.

Experience

Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Organizations
Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Publications
Various UK and International construction and legal publications.

Education/Credentials
LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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