Recovery of head office overheads due to prolongation of time

Abstract

It is a contractor’s obligations to execute the works in accordance with the contract and entitled to be paid for works done including all variations instructed by the employer. The entitlement to claim for other additional payment caused by the employer is generally covered under ‘direct loss and/or expense’ claim. The heads of claim to be included under this claim are on-site overheads, loss of productivity, interest and finance charges, etc. The other heads that the contractor usually includes is head office overheads. The objectives of the research are firstly, to determine the requirements to be provided when claiming for head office overheads, and secondly, to determine the most preferable method to be applied when calculating the head office overheads. The approach adopted in this research is by way of case laws analysis collected from countries specifically Malaysia and the United Kingdom. The research shows that the main requirements that the contractor needs to provide when claiming for head office overheads are: to show that because of the resources being locked on the current delayed project, they are unable to tender; to show that a drop in company’s turnover due to the prolongation of time; and to show that ‘an act of prevention’ by the employer has resulted in a delay. The research also shows that there are three common methods when ascertaining the head office overheads namely the tender allowance method, the Formula Method and the Actual Cost Method. The research suggests that the most preferable method to adopt when calculating the head office overheads due to prolongation of time is using the Actual Cost Method based on actual cost incurred on affected delay period. The other methods are not preferred because they are solely based on approximation or projection i.e. Formula Method and Tender Allowance Method respectively.