What are Head Office Overhead Claims in a Construction Project?

Whenever you start a construction project, there will always be chances of delays in various activities. With each delay, there will be a resultant claim. Mostly the party responsible is either the workers, contractor or the project manager. But in some cases, it is the owner who is, for the claim.

There are many kinds of owner caused delays. But most often, the response of the contractor is the same: contractors demand compensation and adjustment in the contract, both in terms of time as well as cost. Dealing with such claims need services of construction claim consultants for appropriate cost quantification and time estimation.

If you are running your project in one of the most saturated construction industries, e.g., the UAE, you are highly likely to cross paths with a reputable consultancy. You can acquire the services of Construction claim consultants Dubai based companies and be sure that the estimation of overhead costs is to the point and free of any misrepresentation. This article aims to give an overview of the overhead claims as they arise in construction projects.

Head office overhead claims: All you need to know

Many construction projects face the challenge that Head office overhead claims pose towards a project owner. Answers to the following questions will give a fair enough idea of what these head office overhead claims are: 

1. What is HOOH?

In accounting, the overheads mean the expenses that an organization pays on a continuous basis. These can be fixed at any time. In the construction industry, the is are the expenses that a company has to pay in proportion to the pricing of a project during the project to a company.

Head office overhead costs generally include finance charges, property costs, insurances, advisory fees, etc. These also include salaries, borrowings, interests, and travel expenses.

2. How to calculate office overhead?

There are at least eight formulas that are used in the construction industry to calculate the office overhead. The most common method is Eichleay’s formula. It takes into account the contract billings and allocable, to estimate the amount of time that the project completion time will extend by, and the cost that the owner has to pay I order to make adjustments in the aftermath of the losses.

Other formulas include Hudson formula, Manshul formula, Carteret formula, Allegheny formula, and Emden formula.

3. Key definitions in overhead claims

Overhead claims are made by the contractor so that the owner takes responsibility for the delay. With this claim, the owner has to pay an amount beyond the terms of the contract, after an expert witness has quantified the losses. Some of the definitions of the key terms used in cases of overhead claims are as follows:

1. Unabsorbed overhead

Sometimes the cash flow of projects diminishes completely as a result of an owner-caused delay. Owing to this, the already fixed overhead costs, as decided at the time of contract, cannot absorb the losses. Thus the amounts have to be paid additionally, or another project’s budget has to absorb the losses. If the already decided amount of overhead costs is enough to compensate for the losses, there is no unabsorbed overhead.

2. Delay period

Apart from the usual delay that occurs in any activity of a construction project, the overhead claims delay period is a different terminology. It refers to the amount of time that the cash flows of the project remained diminished.

3. Extended period

The contract of any construction project has a specified time for completion of the project. When the owner caused delays to occur, sometimes the project completion date extends. This extended time is known as the extended period in overhead claims.

Are you facing challenges in your construction project?

Construction projects are complex. Dozens of small and big activities are going on in the duration of the project. Many activities will face delays. There will be many delays that are caused due to the prerogative of the owner of the project. In those cases, the contractor demands the owner to pay overhead costs beyond the terms of the contract.

In order to have the costs estimated in the most suitable way, you need to hire the best expert witnesses for your project. If you are in the UAE, you can get in touch with the best experts. You can acquire the services of one of the best Construction claim consultants Dubai for ensuring that no party needs to pay an unjust amount as compensation.

Professionals can ease the hassle by using the most suitable methods for estimation as per the needs of your project.

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