Construction Law/Loss of Overhead


We are the Main Contractor for Road construction project to which FIDIC May 2005 MDB Harmonized edition is is a re-measured contract.
Original Contract price is 60 US $ Million and final contract sum is 45 US $ Million due to omission.
Meantime some of critical items were increased (Asphalt Surfacing Works) and EOT was approved by the Employer.
1. Part of the Overhead (OH) and Profit planned from the Contract has lost due to reduction of Contract price.
2. Additional OH has incurred due to prolongation.

The engineer is stating that the Contractor is over recovering OH due to additional quantities. But actually due to prolongation of the contract period, the Contractor is having a loss of OH. Could you please advise me how to handle this argument??

Hi Udaya
In a re measurement form of contract the loss of OHP for omitted work is a natural outcome of the deduction. I do not think you can do anything about that and it is partially balanced by the additional surfacing.
However considering that the deduction is around 25% of the total you may have a case for revision of key rates and prices to check the imbalance of "fixed price" elements in the unit rates - for instance the cost of installing and dismantling a concrete batching plant would be under recovered.

Regarding prolongation you are entitled to recover the time related costs that were spent during the EoT cause period.
This is calculated by listing all the time related costs of the site infrastructure (Prelims) spent for each week during the delay period and allocating each weeks cost to the actual delay period.
For instance if the delay event occurred during weeks 50 to 70 and caused 15 weeks delay then:
On a spreadsheet list all the costs for each week 50 to 70 and add up weeks 52 to 67.
This will give you your time related costs that the employer will pay.
Other heads of cost that occurred during the delay period include:
1. Increased costs of labour and materials.
2. Changes in exchange rates.
You can try recovering lost Main Office overheads by using the Hudson or Emden formula but there is little chance of success.
Best regards
Mike Testro

Construction Law

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Mike Testro


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45 years in the Construction Industry 15 Years as a consultant delay analyst - I now hold myself to be expert in this field.

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