FIDIC

Prolongation Costs Under FIDIC — Valuation, Evidence, and Recovery

When FIDIC delays occur, the cost of extended site presence is substantial and recoverable — but only if the contractor presents the claim on the correct evidential basis and avoids common valuation pitfalls.

6 min read · Updated 23/05/2026

In this article

1. The Entitlement to Prolongation Costs
2. Direct Site Overhead Costs
3. Head Office Overhead Recovery
4. The Emden Formula Approach
5. Segregating Employer-Caused and Contractor-Caused Delay
6. Quantum Meruit in the Absence of Delay

Key takeaway

Prolongation costs are substantial and recoverable under FIDIC Clause 20.2, but the contractor must present the claim on an actual cost basis, not tender rates. Segregate costs by cause, account for concurrent delay, and use contemporaneous records or forensic reconstruction from primary documents.

1. The Entitlement to Prolongation Costs

When a qualifying event under FIDIC Red Book extends the Time for Completion, the contractor is entitled to recover the financial cost of that extended presence on site. This is direct loss — or in some arbitration awards, loss and expense — arising from the contractor’s obligation to remain mobilised and present beyond the original completion date.

Under FIDIC Red Book 1999 and 2017, Clause 20.2 entitles the contractor to recover any cost or damage which the contractor may incur, including:

• The cost of keeping labour, plant, and supervision on site during the extended period
• Site establishment and demobilisation costs that are re-incurred
• Head office overhead allocation to the extended period
• Financing costs on the prolonged expenditure
• Costs arising from the condition of the site or works during the extended period

The phrase “any cost or damage” is deliberately broad — it is not limited to specific categories. However, the contractor must prove that the cost was actually incurred, was caused by the qualifying event, and was not avoidable through the exercise of reasonable care and diligence.

The FIDIC Clause 20.2 Process

The contractor’s entitlement under Clause 20.2 is contingent on following the notice procedure in Clause 20.1. The contractor must give written notice of a claim (including a claim for prolongation costs) within 28 days of the event giving rise to the claim, or if the contractor could not reasonably have been aware of the event within 28 days of first becoming aware of it. Failure to provide timely notice may result in forfeiture of the claim — not merely a procedural sanction, but a loss of entitlement.

2. Direct Site Overhead Costs

The most readily recoverable prolongation costs are direct site overheads — the costs that the contractor incurs simply by remaining on site. These include site supervision, site management, site accommodation and facilities, utilities, plant standing time, and other costs that continue whether active work is being performed or not.

The key principle is actual cost: the contractor should not apply the budget rate from the original tender, which was an estimate. Instead, the contractor should present actual invoices and cost records from the prolonged period. A site supervisor who cost £8,000 per week in the tender may have cost £9,500 per week when hired for the extended period due to supply constraints, mobilisation premiums, or changes in the labour market.

Categories of Recoverable Site Costs

3. Head Office Overhead Recovery

Head office overhead represents the fixed costs of running the contractor’s business — head office rent, management salaries, accountancy, legal, IT support, insurance — that continue whether the project is on schedule or prolonged. When a project is delayed, the contractor incurs the head office overhead cost for the additional period, and this is recoverable as loss and expense under FIDIC Clause 20.2.

The difficulty is quantifying it. The tender estimate for head office overhead as a percentage of contract sum is a starting point, but it is not the measure of recovery. The proper measure is the contractor’s actual overhead rate — derived from the contractor’s audited accounts and expressed as a percentage of turnover or cost.

The Three Formulae for Head Office Overhead

In UK and international construction practice, three formulae are commonly used to calculate head office overhead on prolongation:

The Society of Construction Law’s Delay and Disruption Protocol (2nd edition, 2017) recommends the Emden formula as the most defensible approach in international construction arbitration. It requires the contractor to produce its audited accounts showing total overhead and total turnover, allowing the overhead percentage to be extracted and applied to the delay period.

4. The Emden Formula Approach

To apply the Emden formula correctly, the contractor must: (1) obtain audited accounts covering the project period; (2) identify the actual annual overhead costs (salaries, rent, utilities, insurance, professional fees); (3) calculate overhead as a percentage of annual turnover; (4) apply that percentage to the cost incurred during the delay period; (5) multiply by the number of months of delay.

Example: A contractor with annual turnover of AED 50 million and documented annual overhead of AED 4 million has an overhead rate of 8%. If the project is delayed by 4 months and the contractor’s costs during those 4 months amount to AED 2.5 million, the head office overhead recovery is: AED 2.5 million × 8% = AED 200,000.

The Emden approach is more accurate and more defensible than applying the tender overhead percentage (which was often inflated as a commercial safeguard) or using one of the formulae that assume a fixed cost base. If the contractor’s audited accounts are available and properly present, the Emden approach will be preferred by arbitration tribunals.

5. Segregating Employer-Caused and Contractor-Caused Delay

Not all prolongation is recoverable. Under FIDIC Clause 20.2, the contractor is entitled to recover loss and expense arising from the contractor’s entitlement to an extension of time under the qualifying event mechanism. Where delay is caused by the contractor’s own default, or where delay is concurrent (both parties contributing), the cost segregation becomes critical.

Under the SCL Delay and Disruption Protocol (2nd edition, 2017), where concurrent delay exists, the contractor is entitled to the time extension (preventing time at large) but may not be entitled to the full cost of the concurrent period. Instead, only the period during which the employer’s event was dominant — or where it operated alone — generates a cost entitlement.

The contractor must therefore analyse the delay events on a period-by-period basis, identifying which periods were affected by which events, and calculating prolongation costs only for periods where a qualifying event was the cause of the delay.

6. Quantum Meruit in the Absence of Delay

In rare circumstances, a contractor may incur additional costs that do not arise from a delay to completion but from employer-caused variations or instructions. These costs may be recoverable as direct loss under FIDIC Clause 20.2 on a quantum meruit basis — the reasonable cost of executing work required by the employer but not priced in the contract.

This applies where the contract does not contain a variation clause mechanism, or where the variation mechanism does not adequately address the particular instruction. The contractor should present actual cost records, evidence of the employer’s instruction, and a calculation of the reasonable cost, supported by market data or expert quantity surveying analysis.

Pursuing a Loss and Expense Claim Under FIDIC?

Prolongation and loss and expense claims require rigorous cost documentation, proper causation analysis, and expert valuation methodology. We advise at every stage — from notice through settlement or arbitration.

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