Delay Damages in Construction Projects: A Practical Guide

Delay Damages in Construction Projects

Delay damages are not a side issue in construction disputes, they are the battleground. In over 70% of EPC arbitrations and court cases we review, delay damages are the central claim, often worth tens of millions. Owners pursue liquidated damages to claw back losses from late completion. Contractors counter with prolongation claims when employer actions drive delay.

The legal doctrines are familiar, but entitlement is never theoretical. It is proven or lost through records, schedules, and quantification. At Aegis, we have seen delay damages determine the commercial outcome of entire projects. This article sets out what delay damages are, how they are categorised, how they are calculated, and most importantly what engineers and project managers must do to protect their entitlement.

Delays are an unavoidable part of construction. But when they occur, the real question is not only when will the project finish?  but who pays for the cost of delay?

Owners pursue liquidated damages (LDs) or actual costs when contractors deliver late. Contractors, in turn, pursue compensation when employer-caused delays extend completion. Tribunals and courts are then asked to unravel competing claims that can run into tens of millions.

1. Understanding Delays

1.1 Critical vs Non-Critical Delays

The first question in any delay analysis is whether the delay is critical or non-critical.

• Critical delay: Impacts the critical path and pushes completion beyond the contractual finish date.

• Non-critical delay: Affects activities with float; overall completion remains unaffected.

Contractors rarely recover time-related costs from non-critical delays unless they prove specific expense. Critical delays caused by the employer may entitle time extensions and compensation. Critical delays caused by the contractor expose them to damages.

1.2 Excusable vs Non-Excusable Delays

• Excusable delays are outside contractor control (force majeure, abnormal weather, government orders). They usually entitle time extensions, sometimes compensation.

  
  

• Non-excusable delays stem from contractor causes (poor planning, defective work, equipment breakdown). These may lead to LDs or actual damages payable to the owner.

1.3 Concurrent Delays

Concurrency arises when employer and contractor delays overlap. Tribunals typically grant contractors time but not money, unless costs can be separated.

The SCL Protocol notes that contractors should recover costs only if they can segregate employer-related costs from their own inefficiency. Without separation, compensation is unlikely.

Aegis Insight: In 80% of disputes we see, concurrency is alleged. Few succeed without contemporaneous records showing which costs arose from employer events and which from contractor delay.

2. Types of Delay Damages

Delay damages fall into three broad categories:

2.1 Liquidated Damages (LDs)

• Pre-agreed daily/weekly rates written into the contract (e.g., $50,000/day).

• Must be a genuine pre-estimate of employer loss, not a penalty.

• Provide certainty for employers and contractors alike.

English law has upheld LDs where they are not penal. UAE and Qatar courts, by contrast, may reduce LDs under good faith principles.

2.2 Actual (Direct) Delay Damages

If no LD clause exists, parties revert to actual costs.

• Owners: extended project management, site offices, consultants, financing costs.

• Contractors: prolongation costs such as extended overhead, idle labour and equipment, temporary utilities, preservation, storage, escalation.

2.3 Consequential (Indirect) Damages

Indirect losses such as lost profits, lost business opportunities, or increased financing costs. Most EPC contracts waive consequential damages to avoid unlimited exposure.

3. Calculating Contractor Delay Damages

Contractor damages are complex, involving multiple cost heads.

3.1 Extended Field Office Overhead (FOOH)

Covers site offices, staff, vehicles, consumables, utilities. Rates vary by project phase (ramp-up, peak, ramp-down).

Example: $20,000/day × 30 days = $600,000.

3.2 Unabsorbed Home Office Overhead (HOOH)

Covers corporate functions not tied to projects (rent, admin, insurance, taxes).

Home office overhead covers corporate functions not tied to a single project — rent, admin staff, insurance, taxes. When projects are delayed, contractors argue that overhead which would have been absorbed by the delayed project must now be recovered.

Several formulas exist for calculating HOOH:

• Eichleay Formula (US): widely cited but scrutinised; calculates daily overhead rate based on contract billings.

• Hudson Formula (UK): overhead + profit as a % uplift on contract value ÷ contract period; criticised as imprecise.

• Emden Formula (UK): similar to Hudson but uses actual overheads from accounts; often considered more reliable.

• Other Variants: Mansfield (UK refinement), Australian adaptations, etc.

Tribunal Practice: No formula is universally accepted. Tribunals favour whichever method best reflects contemporaneous evidence. Where company accounts and resource commitments are clearly recorded, Emden or Eichleay may succeed. Where data is weak, claims are often reduced or rejected.

Aegis Insight: We see many contractors rely on Hudson or Eichleay without proper records. Tribunals increasingly expect evidence-driven approaches, payrolls, financial statements, resource allocations, not formulaic assumptions.

Formulas in one form or other are often used but debated.

To illustrate how tribunals weigh these formulas, the following comparison is useful.

Worked Example:

• Allocable overhead = $12,500.

• 90 days worked during delay period.

• Daily rate = $138.89.

• Delay = 30 days.

• Claim = $4,167.

Tribunals accept Formulae but examine assumptions critically. UK courts criticise Hudson but sometimes permit Emden; US federal tribunals prefer Eichleay; Middle East tribunals vary.

Formula	Basis of Calculation	Pros	Cons	Tribunal Reception
Hudson Formula (UK origin)	Tender allowance for overhead & profit ÷ contract period	Simple; easy to apply	Based on tender assumptions, not actual costs; often imprecise	Accepted occasionally in UK/Commonwealth cases but often criticised (Tate & Lyle v GLC)
Emden Formula (UK refinement)	Actual overheads/profits from company accounts ÷ contract turnover	More accurate than Hudson; grounded in real accounts	Depends on reliable financial data; can be manipulated	Preferred in some UK tribunals when accounts are clear
Eichleay Formula (US origin)	(Contract billings ÷ total billings) × total overhead ÷ contract days	Widely recognised in US & international arbitration; structured	Highly scrutinised; requires proof of resource commitment; can overstate	Frequently cited in ICC/US disputes but awarded only with robust evidence
Mansfield / Other Variants	Hybrids or refinements (e.g., addressing criticisms of Hudson)	Attempts to balance simplicity with accuracy	Rarely used; limited precedent	Limited but occasional acceptance in Australia & UK cases

3.3 Idle Labour

Contractors may retain staff during delays. If labour cannot be reassigned, payroll costs for idle workers may be recoverable—if timesheets and logs support the claim.

3.4 Idle/Extended Equipment

Cranes, welding rigs, or vehicles often remain on site during delays. Costs must be linked to prolongation, not inefficiency.

3.5 Temporary Utilities

Contractors may continue supplying water, power, or gases during employer-caused delays.

3.6 Preservation and Storage

Prolonged delays may require preservation of equipment and extended warehousing of materials. Recoverability depends on proper invoicing and logs.

3.7 Escalation

Where delays push procurement into a more expensive period, the cost difference may be claimed.

Example:

• Planned material cost: $3m.

• Actual after delay: $3.25m.

• Escalation = $250,000.

Cost Heads	What It Covers	Evidence Required
Field Office Overhead	Site offices, staff, consumables	Payrolls, invoices, cost codes
Home Office Overhead	Corporate costs (rent, insurance, admin)	Financial statements, allocation formula (Eichleay)
Idle Labour	Wages for idle staff	Timesheets, payroll records, daily logs
Idle Equipment	Cranes, rigs, vehicles	Equipment logs, rental invoices
Temporary Utilities	Power, water, gases	Utility invoices, contractor logs
Preservation	Anti-corrosion, maintenance	Preservation logs, invoices
Storage	Warehousing of materials	Warehouse invoices, material logs
Escalation	Increased labour/material costs	Planned vs actual procurement costs

4. Calculating Owner Delay Damages

Owners typically rely on:

• Liquidated Damages if contract allows.

• Actual costs otherwise (e.g., additional management, consultants, offices).

Example:

• LDs = $50,000/day × 30 days = $1.5m.

• Actual costs = $80,000/day × 30 days = $2.4m.

Type	Definition	Application	Key Points
Liquidated	Pre-agreed daily/weekly rate	Employer claims contractor delay	Must reflect fair pre-estimate; not penal
Actual	Proven costs of delay	Contractor & employer	Requires itemised evidence
Consequential	Indirect losses	Rare; often waived	Exposure unlimited; fairness doctrines may apply

5. Tribunal Trends and Comparative Perspectives

• Notice provisions strictly enforced (FIDIC 28-day rule).

• Concurrency reduces cost recovery unless segregation is proven.

• HOOH Formulas accepted but scrutinised.

• Global claims discounted for lack of evidence.

Comparative Contract Forms and Law

• FIDIC: LDs (Clause 8.7), strict notice (20.1).

• NEC: Early warnings, compensation events.

• JCT: LDs enforceable if genuine pre-estimate; concurrency under Malmaison.

• Civil Codes (UAE, Qatar, KSA): Courts moderate LDs on fairness grounds.

Caselet: When Delay Damages Dwarfed the Contract

Project: EPC pipeline,

Contract Value: USD 50m

LD Rate: USD 75,000/day

Facts: The employer delayed site access but insisted the contractor still meet the original completion date. The contractor also suffered from slow mobilisation and poor subcontractor performance. After 90 days of delay, the employer imposed USD 6.7 million in liquidated damages, a figure greater than the contractor’s anticipated margin.

Tribunal Outcome: The tribunal found that part of the delay was employer-caused (late access) and part was contractor-caused (poor mobilisation). LDs were reduced to USD 3.2 million to reflect concurrency. The contractor was awarded USD 1.1 million in prolongation costs linked solely to the access delay.

Lesson: Liquidated damages can dwarf contractor profit margins. But tribunals will moderate where employer prevention is proven. Segregating employer delays from contractor delays through contemporaneous notices and site records is essential.

6. Practical Guidance

For Contractors

• Serve notices on time.

• Update CPM schedules monthly.

• Record idle labour/equipment daily.

• Itemise prolongation costs.

• Avoid lump-sum global claims.

For Employers

• Draft LD clauses carefully.

• Monitor contractor notices.

• Address concurrency early.

• Maintain records of actual costs.

7. Tailpiece

Delay damages are not abstract legal principles, they are lived realities on every site. For contractors, every cost head, overhead, labour, equipment, utilities, storage, escalation, must be proven with contemporaneous records. For employers, LDs and actual costs must be tied to the contract and substantiated with clear documentation.

The lesson for engineers and project managers is simple: delay damages are not decided in arbitration rooms; they are decided daily, on site, in the discipline of schedules, notices, and logs.

At Aegis, we specialise in turning that discipline into defensible entitlement strategies. We work with contractors and subcontractors to simplify complexity, protect rights, and avoid costly disputes.

The practical lesson for engineers and project managers: delay damages are not won or lost in tribunal rooms. They are decided daily, in notices, schedules, and logs.

👉 Facing exposure to delay damages? Contact Aegis today to safeguard your entitlement before disputes escalate.