Civil Engineering Reference
In-Depth Information
It is clear from the answer to an earlier question that it is not easy for a contractor to recover
lostoverheadsandprofit.Evenwhereacontractorcanmakeoutaclaiminprinciple,itisby
nomeanseasytocalculate theamountofoverheadsandprofitinawaywhichwillconvince
the architect or the quantity surveyor carrying out the ascertainment. Formulae have been
applied by the courts occasionally. They appear to give a relatively easy way of calculating
overheads and profit without the necessity of proving the sum claimed in the usual way by
giving an itemised breakdown. Formulae assume a healthy construction industry and that
the contractor has finite resources so that a delay on one project will prevent it from being
able to take on other work. During a recession, that may not be the case. In addition, if the
contractor's workload is not heavy or if the contractor is substantial, it will have difficulty
showing that a delay caused it to lose the opportunity to carry out other work. But when the
construction industry is buoyant or booming at the material time, a formula approach may
directly engaged administrative staff. If some or all of the prolongation period is caused by
complying with instructions to carry out additional work, the contractor will have recovered
an appropriate proportion of overheads.
Aformulawillnotbeacceptable ifthereisadangerthatitwilloverstatetheactuallossto
the contractor, and the formula should be backed up by supporting evidence - for example,
the tender make-up and the head office and project records and accounts - showing actual
and anticipated overheads before, during and after the period of delay. Any formula should
be used with caution by the contractor, and it should be treated suspiciously by the architect
and quantity surveyor. The best-known formula is probably the Hudson formula, although
it is not ideal. The courts have sometimes referred to the use of this formula when actually
using another slightly less well-known but better formula, the Emden formula. The Emden
formula is as follows:
Where
h
equals the head office percentage arrived at by dividing the total overhead cost and
profit of the contractor's organisation as a whole by the total turnover;
c
equals the contract
sum in question;
cp
is the contract period and
pd
equals the period of delay, the last two be-
ing calculated in the same units (e.g. weeks).
This formula can be useful as an approach where actual costs of head office staff directly
engaged upon the individual contract are not obtainable. In that case, the proportion of the
contractor's overall overhead costs that can be shown from its accounts to be spent upon
