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Construction Law/Head Office Overhead

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QUESTION: Dear Sir

Emden formula is given by: H x C x PD/ 100 X CP

where :
H = head office percentage arrived at by dividing
the total overhead cost and profit of the Contractor’s
organization as a whole, by the total turnover.

C = contract sum

CP = contract period in weeks

PD = period of delay in weeks

My query is if the average overhead cost% is H1 & average profit% is H2 according to the past audited reports.

In the above formula whether the H is H1+H2 or H1 x H2.

Please explain

Br

Sudantha

ANSWER: Dear Sudantha,

Thank you for this question.


In the formula H = (OH&P/T) where OH&P = overheads & profit and T = Turnover.

Your overhead is stated as H1, and your profit is H2; therefore the formula immediately above would become: H = (H1+H2)/T


I hope that this assists you.

Kind regards,
John Dowse

Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line; or visit www.cerno.org

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)


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

QUESTION: Dear Sir

Whether the Contractor is entitled for the Profit?

Because due to the additional Cost incurred due to the Damage, Profit is not entitled.

Please give your comment.

Answer
Dear Sudantha,

Thank you for this question.

Whether or not the contractor is entitled to profit will depend both upon the form of contract adopted and the nature of the event. If, for example, you look at the FIDIC Red Book contract you will see that the word "Cost" is used (a defined term), but so is "cost" (an undefined term). Where the word "Cost" is used the contractor is not entitled to claim profit in accordance with the definition at sub-clause 1.1.4.3; however where the word "cost" is used the contractor can claim profit in addition.



I hope that this assists you.

Kind regards,
John Dowse
Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line; or visit www.cerno.org

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)

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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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