‘Thickening’ of Preliminary Items
It is generally accepted that where a contractor is entitled to an extension of time, he is also entitled to claim for time-related costs for the period of delay. Time-related include costs for providing site management, site establishment, plant and equipment, insurances, additional financing costs head office costs and the like, which are usually priced in the preliminaries section of the bill of quantities.
Are there, however, situations that a contractor may legitimately claim for additional resources, as opposed to the existing resources being deployed for an extended period? Well yes there are and this is known as ‘thickening’.
Consider a situation where the employer has instructed the contractor to carry out a substantial amount of additional work, but needs to meet a completion date earlier than the extension of time to which the contractor would otherwise be entitled. In such a case, it would be necessary to deploy additional labour, plant and machinery to carry out the work, for which he would receive payment under the contract rates and prices when evaluating the additional work. If he deploys additional resources however, he may also need to mobilise additional site supervision, management, administration staff and the like. Mobilisation and demobilisation of both productive and non-productive resources will probably cause the contractor to incur costs. The staff may also require additional site facilities in order for them to carry out their duties, but such costs would not be recovered through the rates and prices. This is thickening and is claimable by the contractor.
If it were not for the requirement to accelerate to meet the employers desired completion date, the contractor would be entitled to an extension of time, for which the employer would incur prolongation costs. The savings for prolongation would therefore possibly offset or contribute towards the thickening costs.
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Can a Contractor recover additional prelims costs even if the project was not critically delayed?
Lahiru,
Thank you for your comment.
If the project was not critically delayed, then the time for completion would not be affected and there would be no entitlement to an extension of time, so therefore time-related or prolongation costs would not usually have been incurred, so these would not be claimable.
If however, a non-critical delay has affected the contractor’s time-related costs, then these would be claimable. An example would be when a delay prevents the contractor from demobilising certain time-related resources during the contract period.
We have a separate blog on this subject: https://www.constructionclaimsclass.com/claiming-prolongation-costs-when-there-is-no-entitlement-to-an-extension-of-time-can-it-be-done/
Dear Andy,
Please I’d like to know how to make claims on some preliminary items which were not initially included in the Contract Bills but which must be carried out on site before works proceed eg. relocation of services and some demolishing which were not captured nor priced during tendering.
Thank you
Hello Andy,
I am already utilizing all the knowledge I have obtained through your Construction Claims Intermediate E-Course that I completed recently.
Thank you for your blog – a place where professional people can share their knowledge and experience as well as engage in discussions.
I have personally been involved on a number of projects, where prolongation costs were considered against acceleration. In all of my cases acceleration costs were higher than of the prolongation but Client’s still have chosen to accelerate the works. Loss in revenues was a key factor in making these decisions.
Thank you and my regards,
Bogdan
Hi Narendra,
A good question, but I think that you are confusing monthly progress valuations with claims here.
Generally, the prelims are analysed into fixed items for mobilisation and demobilisation and time-related costs. For simplicity, let’s assume that the time-related items are allocated equally through the duration of the project, so each month you would include these in the progress valuation depending on the time expended i.e. at month 24, you would include 24 x the time related costs per month.
If the contractor is in delay but there are no extensions of time awards due and if you have not adjusted the time-related payments, then towards the end of the project, there would be nothing left ‘in the pot’ to pay prelims.
Taking your example, the project is 48 months so time related prelims would be divided by 48 for the monthly progress application. After 36 months, it is apparent that the contractor will take 50 months to complete the project. You then need to adjust the time related prelims by dividing by 50 months.
The above is only related to progress payments, to ensure that the contractor is not overpaid. If there are no prolongation cost claims, then the final account will include the full amount of preliminaries included in the contract.
I hope this helps.
Thank You for the explanation.
Dear Andy,
Thanks for this article.
Can you please explain, if reverse of THICKENING of Preliminary is possible?
E.g. in a project of 4 years contract duration, the rate of progress achieved by the Contractor after 3 years is not as planned and it is anticipated that extension of time is unavoidable. In this situation, monthly payment against prelims to the Contractor need to revisit and make it THIN? so as indirect (site facility, supervision, admin staff, insurance etc) cost associated with extended period is taken care?
Kind Regards,
Thank you!
Worth reading!!
EoT and the cost or otherwise depends upon the nature of programme, i.e. whether it is dynamic with resource loading or not. FIDIC needs a dynamic resource loaded programme and then its monitoring through requisite competence helps a lot in controlling the overrun of time and money.
Worth reading!
variations ,EOT and Cost thereof are related to each other in a rational way and the way of considering EOT is given in GC 8.4 i.e., if time due to some activity on, CPM, due to any action of the Employer is is enlarged despite the due diligence by the Contractor, then EOT is entitled. For related Cost, the contractor,adopting due diligence, has to prove that he needs extra resoyrces,despite dynamic programme being used.
Kind Regards
Hi Andrew,
Thanks for your post. I am unfamiliar with the Ellis Baker text, but anything that clarifies things is always welcome.
I use FIDIC to illustrate examples firstly because they are the contracts that I am most familiar with, secondly, because of the international nature of these blogs, they will be familiar to many readers and lastly, FIDIC is a well rounded contract and the principles can be applied to other domestic forms of contract.
There are many clauses in FIDIC that provide entitlement to time, cost and in some cases profit. As you say, 8.4 awards time but not cost and 13.3 deals with payment of variations and also allows time to be awarded in such a case.
The way I see this, is that theoretically, the variation proposal should include for payment for the varied work evaluated at the rates and prices plus payment for any prolongation costs, thickening and/or acceleration costs. In practice however, it seldom works like this because it is more usual to instruct the variation and then for the Contractor to be obliged to claim for time and payment retrospectively. This may be done as one claim, but for ease of management, I prefer to submit separate claims. One of the measured works, one for the extension of time and one for prolongation costs. The reason for this is that a single claim is likely to be held up until all matters are resolved, whereas three claims can be dealt with individually and awards made for the ‘easy wins’ whilst the more compacted matters such as prolongation, thickening and acceleration are being resolved.
I hope this helps.
Andy
Hi Johann,
I totally agree. One of the skills of a good claims practitioner is that whether they are considering a variation or prolongation cost claims, they consider the circumstances and the costs that have been incurred. If you don’t include them in the claim and justify their payment, you will receive nothing.
Andy
There are certain cases of EOTs in which the Contractor may not be able to get EOT cost, e.g. concurrent delays.
Andy, I’ve learned a lot from your posts over the years, but I’m struggling with this particular message, particularly the lead in paragraph.
Of course it all depends on what particular contract you are dealing with, but a lot of what you speak about is FIDIC contracts, so we share an interest in those. In FIDIC Red and Yellow, and in others I deal with (such as NZ standard 3910 and others), variations which increase the Works will usually generate entitlement to extra payment and an extension of time.
But the reverse is usually not true, because not all extensions of time will generate an entitlement to additional payment. The FIDIC clauses are a bit obscurely worded (8.4 for EOT, and 13.3 for Variations) and have generated much debate on some of my projects, but I’ve found the Ellis Baker text on FIDIC contracts, with its various tables on time and money entitlements, to be particularly helpful in explaining this distinction.
I’ve had lots of debates on the logic and reasonableness of this, but usually win the argument when alluding to a hypothetical contract for the construction of one’s own house, where the builder might say “well, we got the house finished but it rained a lot, so I’m going to have to charge you an extra $10,000 for that”. How would you feel?
Are we at cross purposes on this one?
I appreciate that your lead in paragraph is not the main subject of your blog, which is more about acceleration payments. But I could not let it pass without challenge.
Keep up your great work on the Claims Class and other publications.
Regards … Andrew Brickell
Chief Engineer, MWH New Zealand Ltd, Auckland
Dear Andy,
Thank you for this insightful take on preliminaries cost for variations, especially where the completion date still requires to be met. I have also came across the term of “expended costs”. As such thickening cost would also apply to insurance provisions, especially Contractor’s All Risk Insurance, that has to be uplifted due to an increased Contract Price. Similarly, the Performance Bond/Guarantee would have to be uplifted and would form part of the thickening cost. Most contracts would prescribe these uplifts, therefore the contractor should seek compensation for same through thickening cost.
A case by case study of each variation (on the same project) would also be useful, since variations to do with road works would require more surveying staff and traffic safety features like traffic markings and cones, whilst adding additional ceilings to an office environment may require more scaffolding.
The challenge would be to think out of the box, and to demonstrate the practicality of the thickening cost for each and every variation, fulfilling the requirement that “cost” claimed should be proven and actual cost.
Dear Hewlett,
Well written.
However, the last paragraph needs some more clarification.
Regards
SAJI
Hi Saji,
Sorry I wasn’t clear enough.
If a contractor is entitled to an extension of time of say 10 weeks, he will usually be entitled to prolongation costs for a corresponding 10 weeks. This would cost the employer 10 weeks at say $10,000 per week = $100,000. If, however, the employer instructs the contractor to accelerate to meet the original completion date, there will be no extension of time and thus, no prolongation costs. This means that the employer has $100,000 in hand to pay the contractor for mobilisation and demobilisation of the additional resources and the ‘thickening’ of his site management etc. for the acceleration measures. I hope this helps.
Dear Hewitt,
Now it is more clear of what you intended to say
SAJI