A project can perform exactly the same physical scope and still cost materially more simply because it stays open longer.
The Week 12 notes distinguish on-site overheads from off-site or head-office overheads and introduce prolongation cost as a consequence of delay.
Examples of on-site costs include supervision, utilities and project insurance. Head-office costs can include salaries, rent and equipment supporting the wider business. The notes also introduce two traditional approaches: extended preliminaries and the Hudson formula.
Those formulas are source material, not automatically current best practice. Their contemporary legal and evidentiary acceptance must be verified. [FACT CHECK REQUIRED]
The strategic insight is that time itself consumes resources.
The Strategic Context
Project cost is often divided into direct work and overhead.
Direct work is visible: labour, material, equipment and subcontract work.
Time-related cost can be less visible because it continues while the project remains open.
If completion moves by three months, the organisation may require:
- site management for three more months;
- accommodation and facilities;
- security;
- temporary services;
- project-specific insurance;
- planning and commercial resources;
- extended plant or temporary works;
- corporate support.
The scope has not necessarily increased.
The duration has.
This is why delay and cost cannot be managed independently.
What Leaders Commonly Misread
The first mistake is assuming every day of EOT automatically creates the same amount of recoverable prolongation cost.
Time entitlement and cost entitlement are related but not identical.
The second is using a formula without proving actual impact.
A formula can be an estimating method. It does not replace evidence of causation and loss.
The third is assuming head-office overhead is simply a fixed percentage that can be applied mechanically.
The Week 12 source introduces the Hudson formula and suggests generic head-office contribution percentages, but those figures are historical teaching material. [FACT CHECK REQUIRED]
The fourth is overlooking avoided cost.
Some site costs may not continue during a delay. Others may increase sharply.
The fifth is forgetting the principal's own prolongation cost.
Owner project teams, consultants, financing, temporary operations and deferred benefits can also be affected by late completion.
Reframing the Issue
Prolongation should be treated as a time-driven cost model.
For each delay period, the project should ask:
- Which resources remained engaged because the project duration increased?
- Which costs would have been incurred anyway?
- Which costs were avoided?
- Which costs are directly traceable?
- Which corporate costs require an allocation method?
- What mitigation was possible?
This moves the discussion from formula to evidence.
Strategic Analysis: Not Every Delay Day Is Economically Equal
A hypothetical manufacturing installation demonstrates the issue.
A two-week delay during civil works may require a small site supervision team to remain.
A two-week delay during commissioning may require specialist technicians, hired test equipment, temporary production arrangements and client operations staff.
The calendar effect is the same.
The cost effect is not.
Likewise, a delay that prevents the contractor moving staff to another project may create a different head-office argument from a delay where those resources are redeployed productively.
This is why good prolongation analysis needs both program context and cost records.
The Source Formulas
The Week 12 notes show a simple extended-preliminaries concept based on time-related items and delay period.
They also show the Hudson formula for head-office overhead.
Those formulas should be understood as historical tools for thinking about cost allocation, not as automatic legal entitlements.
Current Australian cases, contracts and expert practice may prefer other evidence or approaches. [FACT CHECK REQUIRED]
For ERANORTH publication, the durable principle is:
Use the most direct evidence available before relying on broad allocation formulas.
Strategic Analysis: Delay Cost Belongs in the Business Case
Prolongation is usually discussed after delay occurs, but its enterprise value appears earlier.
During business-case development, leaders can estimate the cost of one additional week or month of project duration. That sensitivity becomes useful when evaluating acceleration, contingency, procurement strategy and schedule risk.
For example, a project with high site overhead, expensive temporary facilities and significant owner-side consultant cost may justify greater investment in early design certainty or schedule recovery than a project with low time-related cost.
The same logic supports option analysis during delay. If recovering one month costs less than the combined prolongation and delayed-benefit exposure, acceleration may deserve consideration.
This does not mean every delay should be accelerated. It means the organisation should know the economics before deciding.
Treating time-related cost as a business-case variable also improves portfolio sequencing. Projects competing for the same scarce resources can be prioritised partly according to the cost of remaining open.
Decision Framework
Apply the Prolongation Evidence Ladder.
Level 1: Direct project records
Payroll, site facilities, plant hire, insurance, utilities and consultant invoices.
Level 2: Time-linked project budgets
Approved preliminaries or resource plans tied to the extended duration.
Level 3: Demonstrated corporate impact
Evidence of head-office resources affected by the delay.
Level 4: Formula-based estimation
Use only where justified and legally appropriate.
The higher the ladder, the more inference is involved.
From Strategy to Execution
Immediate action: identify time-related cost codes before delay occurs.
Medium-term capability building: connect schedule events with financial records so prolongation can be analysed contemporaneously.
Long-term strategic positioning: use delay-cost data to improve contingency, contract pricing and business-case sensitivity analysis.
Leaders should know not just whether a project may be late, but what one additional month actually costs.
Signals to Monitor
Watch for prolongation claims expressed only as a percentage of contract value, lack of site-resource records, claims that do not distinguish direct and head-office cost, extended programs with no corresponding forecast update, or principal delay exposure excluded from contingency thinking.
Another warning sign is treating time as free once the physical scope remains unchanged.
Questions for the Leadership Team
- Which project costs increase purely because duration increases?
- What direct records are available?
- Which costs would have been incurred regardless?
- Are we relying on formulas because evidence is weak?
- What prolongation cost is the principal itself carrying?
- How does a one-month delay affect the business case?
- What cost codes should future projects create from day one?
Closing Perspective
Delay has an economic footprint even when scope does not change.
The strongest organisations treat that footprint as measurable, evidence-based and connected to the schedule.
That creates better claims, better forecasts and better investment decisions.
Related article: Delay Entitlement Is a Causation System, Not a Calendar Argument
Related article: How Leaders Should Set Liquidated Damages Without Guessing
Related article: Claims Begin with Evidence, Not Lawyers
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