Being as the Contractor’s prelims are costs incurred by the Employer if the project overruns, I wondered whether anyone has seen them be included in the calculation of the daily cost for Delay Damages.
I have not seen them included in a delay damages calculation but in theory you could. One problem would be making a calculation in the absence of any tendered information although there is plenty of reasonable cost information available to make an assessment. A further issue would be assessing the share affect under a main Option C, as you would have to make an assumption whether it is likely to be pain or gain.
Delay damages also tend to be influenced by commercial decisions. If the amount is high then the Contractor would need to consider this risk, especially where the programme is ‘challenging’, so it could be counter productive to the Employer.
It should also be noted that recent case law has overturned the old test of “genuine pre-estimate” of the loss and instead applies the following test:
- is a legitimate business interest being protected by the liquidated damages provision,
- is the amount nevertheless extravagant, exorbitant or unconscionable?
So in your situation, does the contractor stand to lose money if you are late? Answer = potentially yes through disallowed cost, eroded gain share due to increased prelims and any difference between the main contract and subcontract delay damages. By including prelims in the damages calculation does it make it extravagant, exorbitant or unconscionable? Answer = unlikely to if they’re merely including forecast additional prelim costs in the damage amount.