Construction Cost Escalation Increases

Increases in Material & Other Costs

The consultancy side of our business has recently received enquiries along the lines of the following: “We have come to the end of our project and are facing a huge loss due to increases in the cost of materials and shipping and because of measures that we have had to adopt to control COVID-19. What can we do?”

Our immediate thoughts are, why have you only just realised that your project is losing money when you have been incurring additional costs due to COVID-19? Since early 2020 and the cost of materials, shipping and the like have been increasing. Surely contractors must have been aware of the effects on their bottom line for many months.

Check the Contract

Nevertheless, clients work with us because of our expertise. We need to advise them correctly. So the place to look to find out “What can we do?” is, as always, in the contract.

If the Contractor is very fortunate, the contract will include provisions to allow adjustments for changes in cost. This is, however, a clause only usually included in contracts during times of high inflation. Such a clause allows the Employer to potentially save money by agreeing to compensate the Contractor for actual increases. This saves the Employer paying to include the risk of inflation within the tender price. I have not seen such a clause included in a contract for many years.

Many increases in the prices of materials, shipping, transport and even labour may be linked directly to COVID-19. If the contract allows the Contractor to claim additional costs for an event such as COVID, this would be claimable. Most contracts that we have examined, however, tend to allow claims for extensions of time due to COVID-19, but not for costs.

Change in Law?

Some of the contracts we have examined give entitlement to claim for costs due to government legislation or government actions. Such a clause would provide a gateway to claim costs mandated by the government in dealing with COVID-19. This would not, however, entitle the Contractor to claim for any increased costs of completing the work due to price escalation.

We have also had to advise several clients that if they are only now thinking about pursuing any claims for entitlement, they have left it too late to make life easy for themselves. Notices should have been submitted when the costs began (almost 2 years ago). Claims should have been submitted many months ago and not left until such time that they have finally realised that they have incurred huge losses.

However, all may not be lost. If you find yourself in difficulty get in touch with us to see how we can assist. And if you want to know how to avoid such issues going forward, why not take up one of our e-courses?

Claims class student

Claims Class Helps Student Secure US$1 Million

This month I am going to allow myself to pat myself on the back, because of a success story from a recent Claims Class student.

A gentleman from an African country contacted me to discuss enrolling on one of our claims courses. He had found out about Claims Class after purchasing a copy of my Book FIDIC 1999 Notices. This is what he told me.

Read more

Lump Sum Cash Contract

What is Included in 'Lump Sum'?

A simple matter that often causes confusion is exactly what is included in a lump-sum price.

Take a typical contract designed by the employer. The contractor is required under the contract to provide the works defined on the drawings and in the specification. In other words, the drawings show the extent and the configuration of the design. The specification describes the composition and quality of the work. Thus, it is clear that the lump-sum requires the contractor to provide whatever is included in the drawings and specification.

Read more

Variations and Preliminaries

Claims for Additional Preliminaries as a Result of Variations

Variations - something that comes up a lot in our courses. One question crops up time and time again. Does the contractor have entitlement to payment for additional preliminaries arising from variations?

The short answer to the question (as usual) is that it depends.

What Are Preliminaries?

Read more

final account disputes

Why do Final Accounts lead to Disputes?

I recently provided advice on a dispute of US$250M. This sum includes variations, prolongation costs, acceleration costs, disruption costs and delay penalties. The dispute crystalised when the contractor submitted his final account. This is a familiar occurrence. In fact, a large proportion of disputes occur when the project is either nearing or after completion.

Read more

Payment for Work Not in Accordance with the Contract

A former Claims Class student asked my advice on a matter which I thought would be an interesting case study to share. The Contract conditions are FIDIC and the question around non-payment of work which was not in accordance with the contract.


Each month the Engineer makes deductions in the payment certificate for Non-Conformance Reports under Sub-Clause 14.6 (Issue of Interim Payment Certificates), sub-paragraphs (a) & (b).

The Contractor does not contest the Non-Conformance Reports. They state that the defects will be rectified. A problem being that this is likely to take some time to achieve.

Read more

Late Payment: What Can We Do When We Don't Get Paid?

What can we do if we don't get paid or suffer from late payment? We get this question a lot at claims class, along with similar questions about late certification.

In some regions, this is less of a problem because legislation is quite strict on payment terms. However, elsewhere, it is common for the paying party to hang onto money for as long as possible.Read more