Analysis of contractors' head office overhead on compensable delay events
Contractors’ claims for extension of time and/or cost reimbursements could result in disagreements that may not be amicably resolved by the parties concerned. Consequently significant additional costs are incurred in construction projects due to disagreements over these claims. A major criticism of the Sri Lankan construction industry is persistent delays in project delivery. A contributory factor to those delays is disagreements over certain percentage of business’ overhead expenses that are unrecoverable by the contractor. This unrecovered head office overheads (HOOH) is an actual loss to the contractor and the contractor could make a claim for the actual costs incurred during the delay. The selection and application of the most suitable recovery or calculation method is critical for both clients and contractors.
As an aspect of a larger study which develops a HOOH claim process model, the current study focuses on the review of the methods currently being practiced to recover HOOH claims internationally as well as within the Sri Lankan construction industry. The preferred methods used within Sri Lankan construction industry to evaluate contractors’ claims are the formula approach and actual method by contractors and clients respectively. This study shows that salaries and wages of head office human resources and transporting and travelling costs contribute significantly to the contractors’ HOOH.
There are a number of issues with the quantification approaches used during the HOOH claim stages that result in conflicts. The research therefore suggests that there needs to be pre-established claim-tracking processes for claim initiation, quantification and evaluation. The pre-established process would provide a clear understanding of HOOH claims and positively direct claimants to agreed claim records, HOOH cost data and quantification approaches.