Cost Analysis

Head Office Costs

The cost of the Contractor's head office is part of the cost of the project, where the cost of the Contractor's
head office is distributed over the number of projects that the contractor works on according to the size of
each project:

• The cost of rent, maintenance, operation, furnishing and depreciation of the office.

• Wages and salaries including social and health insurance.

• Taxes of all kinds.

• Advertising and marketing expenses.

• Legal advice, auditing and auditing.

• Rent and depreciation of cars.

• Accounting and data processing expenses.

 Head Office Costs
There are several methods of calculating the head office cost to add to the delay period.

1. Hudson's Formula Method, published 1970.

This method is based on the cost to the head office which is in the contract and is calculated upon
bidding as a percentage of the contract value.

The value of the contract used in this equation contains the office's expenses, and this is
considered double-counting in calculating the expenses as it was more appropriate to equal the
contract value minus the administrative expenses.
 Head Office Costs
2. Emden’s Formula

In this method, we first calculate the expense ratio for the office divided
by the office revenue
 Head Office Costs

3. Eichleay’s Formula

In this method we calculate the overheads allocated to the

project.

The second step calculates the daily expenses spread over

the project.

The third step is to calculate the expenses due for the delay
period
 Profit

The Contractor may be entitled to only cost compensation in some cases and the cost in addition to profit in
other cases.

The two parties may agree in the terms of the contract to set a specific percentage regarding profit. If not,
FIDIC states in 1.1.20 that it is 5%.
 Loss of Opportunity

Extending the project time may result in depriving the Contractor from using project resources on
other projects that were planned to start after the end of the ongoing project, and thus the
Contractor will incur an increased cost for resources and equipment in the new project.

Therefore, the opportunity to apply for a project is missed due to the delay of the current project,
and the Contractor will need to prove that he has incurred extra costs as a result of the loss of the
opportunity or profit.