How to Calculate Prolongation Costs: Hudson, Emden and the Actual-Cost Approach

A prolongation claim is not a claim for delay. It is a claim for the cost of delay, and the distinction decides whether the claim survives. A contractor can be entirely right that the employer caused a critical delay and still recover nothing, because it quantified the loss with a formula the tribunal would not accept, or because it never captured the records that turn a period of delay into a proven sum of money. The quantification of prolongation is a discipline in its own right, and it rewards the contractor who understands the difference between what its costs actually were and what a textbook formula says they might have been.

What Prolongation Cost Actually Compensates

Prolongation cost is the time-related cost a contractor incurs because the project ran longer than it should have. It is fundamentally different from the extension of time itself, which is a relief from liquidated damages, and confusing the two is the single most common error in this area - a confusion we untangle in EOT vs Prolongation. The extension buys you time. Prolongation cost recovers the money that time cost you. You can hold one without the other, and a contractor who assumes that winning the extension automatically pays the prolongation is in for an expensive surprise.

The costs that prolongation compensates are the ones that run with time rather than with quantity of work. Site establishment kept standing longer - the site offices, welfare, storage and temporary works. Site management and supervision staff whose salaries continue through the extended period. Plant and equipment retained on site. Site-wide services such as power, water and security. And, in principle, the contractor's off-site head-office overhead and the profit that the delayed resources could have earned elsewhere. What prolongation does not compensate is the cost of doing extra work, which is a variation or a disruption question, not a time-related one. Keeping that boundary clear is essential, because a prolongation claim padded with non-time-related costs invites the whole claim to be doubted. For a fuller treatment of what genuinely qualifies, see What Is a Prolongation Claim and What Actually Qualifies.

The Formula Methods for Head-Office Overhead

The famous formulae - Hudson, Emden and Eichleay - all address one specific and difficult head of loss: unabsorbed head-office overhead. The problem they try to solve is real. When a project is prolonged, the contractor's central overhead - the head office, the directors, the accounts and estimating functions - continues to be incurred, but the delayed project ties up resources that could otherwise have been earning contribution to that overhead on another job. The formulae are attempts to estimate that lost contribution.

The Hudson formula takes the head-office overhead and profit percentage from the contract itself, applies it to the contract sum, and pro-rates it over the contract period to derive a weekly amount, which is then multiplied by the period of delay. The Emden formula does the same but uses the contractor's actual overhead and profit percentage taken from its audited accounts rather than the figure priced into the contract. The Eichleay formula, more common in United States practice, allocates total company overhead to the contract in proportion to its share of total billings, then derives a daily rate for the delay period. All three share the same logic: estimate a rate of overhead recovery and apply it across the delay.

Why Tribunals Are Wary of Formulae

The formulae are elegant, and that is precisely the problem. Each rests on assumptions that may not hold on the actual project. They generally assume the contractor could and would have won other work to absorb the overhead but was prevented from doing so by the delay - the assumption of a constrained market. They assume the priced or historic overhead percentage reflects the real recovery lost. And they can double-count if elements of head-office cost are also claimed as site-based prolongation. Where the assumptions fail, the formula produces a number that looks precise but is not real.

For these reasons tribunals generally treat the formulae as a method of last resort, to be used only where the loss of overhead recovery is genuine but cannot practically be proved by direct evidence. The prevailing preference is for the contractor to demonstrate its actual loss: that it turned away identifiable work because its resources were tied up, or that its overhead recovery genuinely fell during the delay. A formula unsupported by any evidence of actual loss is vulnerable, and a formula deployed where the market was not in fact constrained - where the contractor had spare capacity anyway - may be rejected outright. The formulae answer a question about lost opportunity, and if there was no lost opportunity, the formula answers nothing.

The Actual-Cost Approach

For the large majority of prolongation cost - the time-related site costs - the reliable method is not a formula at all. It is substantiation: proving the actual additional cost incurred during the period of delay. This is the approach tribunals prefer because it answers the real question, which is what the delay actually cost, rather than what a model predicts it might have cost.

The actual-cost approach works period by period. Identify the period of compensable delay - the window for which the employer bears responsibility, established by the delay analysis. Then identify the time-related resources that were kept on site through that window - the staff, the establishment, the plant - and prove their cost from the contractor's own records: payroll, plant hire invoices, subcontractor accounts, utility bills. The claim is the additional time-related cost incurred because those resources remained deployed during the compensable period. Crucially, the cost claimed must be the cost during the actual period of delay, which is often the extended period at the end of the works, not an average across the whole job, because the resources on site during a prolongation are frequently different from the resources present at peak. This period-specific discipline is what separates a robust claim from an inflated one, and it is central to the forensic support CALIM provides through its dispute and claims services.

Records Are the Claim

The uncomfortable truth of prolongation quantification is that the method matters less than the records. A contractor with meticulous contemporaneous records can prove its actual costs and rarely needs a formula at all. A contractor without records is forced back onto the formulae precisely because it has nothing else, and then finds the tribunal reluctant to accept them. The quality of the records determines which method is even available.

The records that matter are the ones that tie cost to time. Time sheets and payroll that show which staff were on site and when. Plant registers and hire invoices that show what equipment was retained and for how long. Site establishment costs traced to the extended period. A programme and delay analysis that fixes the compensable period so the costs can be aligned to it. Assembled contemporaneously, these turn a period of delay into a proven sum. Assembled after the event, reconstructed from memory and averages, they produce a claim that looks defensible until it is tested and then unravels. The contractor who wants to be paid for prolongation builds the record while the delay is happening, not when the claim is being drafted.

Frequently Asked Questions

What is the difference between an extension of time and prolongation cost?

An extension of time is relief from liquidated damages - it moves the completion date and protects you from being charged for the delay. Prolongation cost is the money you recover for the time-related costs the delay caused, such as extended site establishment, supervision and plant. They are separate entitlements decided by different tests, and you can hold one without the other. Winning an extension does not automatically pay your prolongation; you still have to prove the cost the extended time caused. Assuming the two travel together is one of the most common and expensive mistakes in delay claims.

What is the Hudson formula and when is it used?

The Hudson formula estimates unabsorbed head-office overhead and profit during a delay. It takes the overhead and profit percentage priced into the contract, applies it to the contract sum, pro-rates it over the contract period to get a weekly rate, and multiplies that by the delay period. It is used to approximate the head-office overhead recovery the contractor lost because delayed resources could not earn contribution elsewhere. Because it relies on assumptions - notably that other work was available and was foregone - tribunals generally treat it as a method of last resort, to be used only where the loss is genuine but cannot practically be proved directly.

Why do tribunals prefer actual cost over a formula?

Because actual cost answers the real question - what the delay actually cost - while a formula only estimates it from assumptions that may not hold. The formulae assume a constrained market in which the contractor would have won other work but for the delay, and they can double-count or rely on a percentage that does not reflect real recovery. Where those assumptions fail, the number looks precise but is not real. Proving the additional time-related cost incurred during the compensable period from contemporaneous records is more persuasive because it is evidence rather than estimate, and it is far harder to attack.

What costs can I claim in a prolongation claim?

You can claim the time-related costs incurred because the project ran longer: extended site establishment such as offices, welfare and storage; site management and supervision staff whose salaries continued; plant and equipment retained on site; site-wide services such as power, water and security; and, in principle, unabsorbed head-office overhead and lost profit contribution. What you cannot claim as prolongation is the cost of doing extra work, which is a variation or disruption matter. The costs must relate to the actual period of delay, which is often the extended period at the end of the works rather than an average across the whole project.

How important are records to a prolongation claim?

They are decisive. The quality of your contemporaneous records determines which quantification method is even available to you. With detailed time sheets, payroll, plant registers, hire invoices and establishment costs tied to the compensable period, you can prove actual cost, which tribunals prefer and which is hard to attack. Without records you are forced back onto the formulae, precisely because you have nothing else, and then you meet a tribunal reluctant to accept them. Build the record while the delay is happening. A claim reconstructed from memory and averages after the event looks defensible until it is tested, and then it unravels.

Win the time, then prove the cost - because the extension protects your programme, but only the records get you paid for it.

Note: This article provides general information on the quantification of prolongation cost and is not legal advice. The acceptability of formula methods, the treatment of head-office overhead, and the evidence required to prove actual cost depend on the specific contract, the governing law, and the approach of the relevant tribunal, which vary between jurisdictions. Contractors should obtain advice tailored to their particular claim before relying on any method of quantification.