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1.1 The completion period of any construction contract is a vital aspect of its effective and cost-efficient management. Thus it is important that delays are kept to a minimum. The authorized delays are covered by the issue of an extension referred to as Extension of Time [‘EOT’]. The ‘EOT’ can also be referred to as replacement of time that is lost due to delays. Certificates for ‘EOT’ are issued to validate delays that can be attributed to the client. These delays could be due to changes/expansions to the scope of works including specifications and delays in appointment of nominated sub-contractors/suppliers, provide critical information [drawings, decisions, site availability] to the contractors/suppliers before their assigned scope of work can be implemented. In addition there are many unforeseen factors that are beyond anyone’s control. These unforeseen factors could include third parties such as other construction works in the areas adjoining the work site, unknown soil conditions, disruptions in supply of manpower, construction plants and building materials either of local or of foreign origin, if applicable, industrial disputes, new legislations with time implications, higher cost due to inflation, war, force majeure [Acts of God], etc.

2.1 All standard construction contracts documentation provide relevant terms and conditions to provide authority or approval of the additional time that would be required for completion of any contract that would be beyond the original prescribed completion period. This is of particular importance where the standardized contract documents are not to be used but new formats are to be prepared. Clients should ensure that the relevant terms and conditions are provided in the contract documents. The objective is to emphasis the importance of the many aspects that are relevant to the issue of ‘EOT’ as the contractors/suppliers would be eligible to recover from the client the costs associated to such delays.

3.1 Costs associated with delays that are attributable to the contractors/suppliers would be borne by the responsible contractors/suppliers who may be penalized with the imposition of liquidated & ascertained damages [‘L&AD’] at rates as prescribed in the terms of the contract.

4.1 The aspects that should be of importance to the professionals involved in any construction contract management are listed below. However, these should be modified as appropriate to the scope of works of the specific contract.

[b] Reasons for ‘EOT’ to be justified included estimated duration of ‘EOT’;

[d] Application for ‘EOT’ to be made in advance and approved when the reason for extension can still be verified;

[f] Relevant financial institutions and others to be informed of approved ‘EOT’;

[g] Extensions not to be approved if due to fault of sub-contractors/suppliers as they would be subject to penalty payments referred to as liquidated & ascertained damages [‘L & A D].

5.1 It is the responsibility of the technical professionals of all parties to ensure that their recommendations are based on the following aspects.

[b] The claims arising from the extended completion period are claimable under the relevant contract conditions;

[c] Claims are computed correctly and substantiated with original documents as evidence;

[d] The ‘EOT’ is followed by the issue of a variation/change order to enable submission of claims and its and settlement;

6.0 Responsibilities of Contractors/Suppliers where the delay is attributable to the client:

[a] Submit the application in writing as soon as the need for an extension is realized;

[b] Provide evidence to justify any application for ‘EOT’ and the duration of extension needed;

[d] Request for a ‘Variation/Change Order’ to monetize the quantum of claims arising from the issued ‘EOT’ for it to be included in the interim/progress claims.

7.0 Responsibilities of Client where an ‘EOT’ is approved [by the Client]

[a] Contractors/Supplier’s application is in compliance with the prescribed conditions;

[b] ‘EOT’ duration is reasonably computed taking into account the total length of time required to complete the work where the work involves repairs to damaged works;

[c] Claims are justified and in accordance with basis and rates as prescribed in the contract conditions, where applicable,

[d] Claims for which there are no prescribed rates, the claims computation is in line with industry practices and substantiated with originals invoices, time sheets & other documentary evidence;

[e] The relevant financial institutions [Banks & Insurance Companies] are informed of the issuance of approved ‘EOT’;

[f] The relevant financial documents providing safeguards are correspondingly extended to be in line with the new extended completion period as approved in the ‘EOT’;

[g] Monetization of claims arising from the approved ‘EOT’ is computed correctly and included in the interim/progress payment as and when due and not delayed.

8.0 Responsibilities of Financial Professionals of Clients and Contractors/Suppliers

8.1 The financial/accounting professionals of both the clients and contractors/suppliers should not accept the quantum of claims as recommended by the technical professionals. They should independently scrutinize the basis and methodology of computation of the claims. They should seek the advice and clarifications from the technical professionals and seek external advice if necessary where any aspect is not understood. It should be their responsibility to independently examine the basis and computations of the claims together with scrutiny of the original invoices and other supporting documents that form the basis of the claim. The accounting professionals should account the quantum of the claims in the relevant accounts of their respective organizations and the auditors undertake an audit as planned or during in-depth audit of any selected contract.

8.2 The audit professionals [internal/external] of the clients and contractors/suppliers should ensure that the technical and technical professionals comply with the prescribed procedures. In addition the auditors should also subject ‘EOT’ and its financial implications to in-depth audit during audit of selected construction/procurement contracts..

9.1 All relevant documents pertaining to the ‘EOT’ should be retained in safe custody and properly indexed and for period that should include the prescribed defects liability period or statutory period or until such time when all outstanding matters have been settled, whichever is longer. The format should be in printed form and computerized form. Clients/Contractors/Suppliers should obtain relevant expertise including legal advice in respect of documents maintained in computerized form.

10.1 The completion period of any contract can either be predetermined [or fixed] in advance by the client or it could be stated by the prospective contractors in their bids. The predetermined completion period is comparatively very much shorter than that would normally be required under normal construction periods. This predetermined period is used only in exception cases where the client is convinced that all the relevant information is available regarding the scope of works and will not be subject to any delays. However, the financial implications [cost] of a contract with a predetermined completion period are generally substantially higher due the need for additional manpower and logistical resources that would be needed for short periods.

10.2 The client generally will prescribe very high liquidated & damages rate [L & A D] for any delays. The object is to emphasize to the prospective contractors/suppliers the importance of the short predetermined period. The consequence of this is that contractors/suppliers will tend to over price their bids to take into consideration any contingent risks costs.

11.1 The implementation of any contract under the predetermined completion period should only be considered in cases where all factors are known and without the possibility of any unpleasant surprises. The rationale is that the client does not expect any delays and thus the need for issue of ‘EOT’. Clients generally prescribe very high rate of ‘L & A D’ to ensure that the contractors/suppliers realize the importance of the short predetermined periods. However, clients should always compare the financial implications and difference in cost between the short predetermined completion period against the normal construction period to evaluate the cost implications and benefits of the two methods before arriving at a decision. However, another aspect that the client should always take into consideration is that there is always a possibility of unforeseen events that could result in need for extensions and thus resulting in the objective of the predetermined short completion period being defeated.

12.1 All ‘EOT’ would have financial implications that generally include additional costs. These could be direct and indirect costs in the form of non-availability of the project for its intended purpose and others such as holding costs for the extended period required for completion of the contracted works. The recommendations of ‘EOT’ are another aspect in the construction industry that is susceptible to fraudulent practices. The risks will increase with the quantum of contract values where the ‘L & A D’ can be very substantial. Thus it is emphasized again that the clients should ensure that the ‘EOT’ approved is for the period that is justifiable and the consequent claims are priced reasonably. Finally the relevant documents should be in safe custody until such time when all outstanding issues have been settled and legal obligations satisfied.

‘EOT’ is a way of Extending the Completion Period that could be

at the Expense of the Client and Rewards for the Contractors/Suppliers.

Readers - Please note that the contents of this article are for general use. No reference is made to any specific contract terms and conditions in respect to ‘EOT’ as these would vary in the contract formats, from country to country, site and the scope of works. Reference should be made to the specific clauses.

Note: It is important that Companies involved in the Construction Industry be aware of the various contract documents that would assist in the effective management of the contracts from the inception stage to the stage when the works are completed and used for their intended purpose. The documents relevant to the various aspects would vary but they may be summarized under the following headings:

Articles on following Check Lists have been published in the ‘AuditNet’ Newsletters.

The writer welcomes comments from readers with the intention of mutual enhancement of knowledge. E-mail address: >gursharan38@gmail.com<>sharwant38@yahoo.com.

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