Cost entitlement for subcontractor prolongation in Qatar’s construction industry

Why are many lead contractors in Qatar so confident that they should only pay subcontractors when paid by the project owner, and why are subcontractors accepting of this status quo? Tom Kapapa, of Quantum Global Solutions, explores some issues around subcontractor prolongation costs and associated ambiguities.

The cliché ‘the elephant in the room’ is a British metaphorical idiom for an obvious truth that is either being ignored or unaddressed. Likewise, the cost entitlement of the subcontractor prolongation in construction is an evident risk that relevant stakeholders do not want to discuss or take responsibility for.

The subcontract that comes from the lead contractor is clear on who is responsible on occasions where subcontractors fail to deliver on time. The construction contracts have provisions on liabilities and responsibilities in case of delay depending on who caused it. However, these seemingly clear obligations remain ambiguous after all. So why or how are contractors and subcontractors not seeing this ‘elephant’, that is the risk of bearing prolongation costs?

“Contractors hesitate to pay prolongation costs to subcontractors for fear that they would not be recoverable from the project owner.”

Types of prolongation costs

A subcontractor has the right to seek prolongation costs for excusable delays caused by others which extend the duration of the subcontract works. Put simply, excusable delays are those delays which is not the fault of the subcontractor such as: (1) delays by the contractor; (2) delays by the project owner; or (3) delays by other subcontractors on the project. Such delays may directly or indirectly affect the subcontractor in question but would be deemed excusable in any of the abovementioned events.

In my experience of advising contractors and subcontractors, there are two scenarios leading to subcontractors’ prolongation costs. (1) Prolongation costs caused by a change in the quantity of work – I refer to these as physical change. And (2) Prolongation costs flowing from a breach of contract, such as the employer failing to provide necessary instructions or information to allow contractor to perform the works particularly when dealing with third-party issues waiting for information or receiving insufficient information. I refer to these as non-physical change.

Generally prolongation costs flowing from (1) are easily acknowledged and resolved compared to those emerging from (2).

However, in spite of several provisions it is contractually difficult, if not impossible, to have a ‘true’ back-to-back contract.

Inclusion of back-to-back clauses in construction agreements do not entirely protect contractors against dealing with subcontractor prolongation costs, because provided that an excusable delay has occurred, normally the contract and particularly the laws of Qatar provide that the affected party should be compensated if there is a damage cost.

Indeed, while an excusable delay in project delivery can be justified by a subcontractor, the owner may not be the reason behind prolongation leaving contractor as the responsible party. In such cases, a main contractor is unlikely to receive prolongation costs from the owner, while it may be liable to make the payment to the subcontractor.

Post office mentality

Unfortunately, contractors are failing one of the fundamental responsibilities which are to manage and mitigate delays in the works. Oftentimes, contractors merely act as coordinators passing information up and down the line. Subcontractor raises or requests for information, the contractor passes the same up to the line for others to decide and passes the received information or decision down the line. Such a practice is believed to excuse the main contractor from concerned liabilities.

Ultimately, a subcontract is not independent of the main works. It is reflected as part of the main works. In the main contract, they remain the contractor’s works for which the contractor is solely responsible. Hence, the risk of prolongation costs can be mitigated if the lead contractor assumes the role as manager of subcontractor works as well as a liaison of information from the owners to the subcontractors.

“In the main contract, subcontractors’ works are reflected as the contractor’s works, for which the latter is solely responsible.”

Proof of damage cost

If contractors are to recover subcontractor prolongation costs from the project owner, they have to prove that not only is there an excusable delay but that the contractor has paid the cost. Proving that a cost has been paid is clearly a problem. Contractors hesitate to pay any amount to subcontractors for fear that they would not be recoverable from the project owner.

Contractors, hence, are not willing to assess or determine subcontractor prolongation costs until or unless the project owner does the same. The question that complicates it further is which one comes first?

The project owner will demand the contractor to provide a proof of costs while the contractor is reluctant to do so because it does not want to commit to a liability with subcontractor unless paid by the owner. Meanwhile, the subcontractors await the recovery of their costs resulting from prolongation.

What’s in the rates?

If it is agreed that the delays caused at the project were excusable, the project owner will usually compensate the main contractor based on the rates on the bills against the period of delay. The project owner would then reject other extra over costs as they would be deemed included in the rates. Accordingly, it falls again on the contractor to determine and/or agree the same with his subcontractor.

However, the problem stems from the fact that rates in contractors’ bills will not separate subcontractor rates. As a result, the contractor is the one mainly at risk, as any recovery from his rates will include liability for subcontractors’ claims or costs. Moreover, if the excusable delay is not due to any change in the works (physical delay) but is due to a breach of contract where no physical change exists, the problem becomes even more complex. Usually, when a physical change affects the subcontractor, costs are recoverable from the rates in subcontractor’s bill. However, if prolongation is a result of breach of contract, the rates in the bills will not have sufficient detail for a valuation to be agreed upon.

Come and learn more about this topic and the broader topic of construction claims. Join Andrew Woodward, Executive Director at QGS who will join Claims Class to deliver two back-to-back courses on construction claims and the how to manage claims using the FIDIC contracts. Click for dates and registration.

Tom Kapapa, Operations and Technical Director

Tom Kapapa is the Operations and Technical Director at Quantum Global Solutions. He is a member and Qualified Professional Surveyor of the Royal Institute of Chartered Surveyors. QGS is acknowledged as one of the leading management consultancies dedicated to serving the interests of national and international construction and engineering organisations.