Almost every prolongation claim includes a figure for head office overheads, frequently calculated by a formula and rarely supported by anything else. It is the head most often reduced to nothing on assessment, and dealing with it properly is part of loss and expense claim preparation.
The difficulty is that the claim is for something real. A prolonged project does occupy head office resource. Proving which part of that is recoverable is the part that gets skipped.
What the claim is for
Two different things, frequently confused. One is additional overhead cost actually incurred because the project ran longer.
The other is overhead and profit that the business could have earned elsewhere and did not, because resource remained tied to this project.
They are proved differently and conflating them is the commonest reason the whole head is refused.
Additional cost incurred
Where the prolongation caused identifiable extra head office cost, that cost can be shown from the accounts.
Additional quantity surveying time, additional contract management, additional administration specifically attributable to the extended period.
This version of the claim is modest and provable, which makes it worth presenting even where the larger version is not available.
Unabsorbed overhead
The argument is that head office cost is recovered from turnover, and a project held open longer than planned absorbs less than its share.
That depends on the business having been unable to replace the turnover, which is a question about the market and about the company’s own capacity.
Where the business took on other work during the period, the argument is weaker, and an assessor will ask.
The formula approaches
Several published formulae exist and all of them produce a figure from turnover and contract period rather than from evidence of loss.
A formula is a method of calculation and not a substitute for establishing that a loss occurred.
Presenting a formula result without addressing whether the loss was suffered is what invites the refusal.
What has to be established first
That the business was unable to take on other work during the period, or took on less than it otherwise would have.
That the resource in question was genuinely held, rather than available and simply unused.
And that the contract does not exclude the head, which some forms and many amendments do.
What the records need to show
Turnover and overhead cost for the relevant periods, from the company accounts.
Evidence of work declined or deferred, where that is the basis of the claim. Correspondence and tender records serve this purpose.
And the project’s own share of overhead as allowed at tender, so that the comparison is between like and like.
Profit
A claim for lost profit is a different thing again and depends on both the contract and the circumstances.
Some forms exclude it. Some amendments exclude it more firmly. Reading the actual clause comes before calculating anything.
Where it is available, it faces the same question as unabsorbed overhead: was the opportunity really lost.
How assessors respond
A formula figure with no supporting argument is usually refused outright, which is the commonest outcome.
A modest claim for additional cost incurred, supported from the accounts, is usually assessed and frequently allowed in part.
Which means the smaller claim often recovers more than the larger one, a pattern that repeats across every head in this area.
Amendments that remove the head
Bespoke amendments commonly exclude overheads and profit from loss and expense, sometimes in a single line.
Where that is the position, the head is not available regardless of what can be proved about the loss.
Establishing that before preparing a calculation saves the whole exercise, and it takes an hour.
What to claim and how
Set out additional cost incurred first, with support, as the primary case.
Where unabsorbed overhead is genuinely available, present it separately, with the market and capacity position addressed.
And state the contractual basis for both, so the assessor can see the head has been thought about rather than assumed.
The company records the head needs
Statutory accounts for the years spanning the project, so that overhead cost and turnover can be established rather than estimated. These are usually available and are usually the last thing anyone thinks to ask for.
Management accounts, which show the position by period rather than by year and allow the relevant months to be isolated. Where the annual accounts straddle the delay, the management figures are what make the comparison meaningful.
And the tender build up, which shows what the project was expected to contribute to overhead recovery. Without it, there is no basis for saying that the project absorbed less than its share.
Where the project was one of many
A business running several projects at once rarely has head office resource dedicated to any one of them, which makes the unabsorbed overhead argument harder rather than impossible. The question becomes what the business could not do because this project continued.
Where the answer is nothing, because capacity existed and work was taken on anyway, the head reduces to additional cost actually incurred. That is a smaller claim and an honest one, and it is usually assessed rather than refused.
Where the answer is that a tender was declined or a start was deferred, the correspondence proving it is worth more to this head than any formula, and it should be put in front of the assessor rather than summarised.
Where it fits
Overheads are a head within a prolongation claim and they follow the time position rather than leading it.
Whether the head survives the contract is initial dispute review work, done before any calculation.
The company level records that make the claim provable belong with the business rather than with the project, which is why they are so often missing from project cost records.
Costs incurred that nobody has agreed to pay?
Loss and expense claim preparation sets out the contractual provisions relied on, the costs actually incurred and the link between each matter and each head of cost, in a form that can be tested.