New approach of delay penalties formulation: Application to the case of construction projects in the Republic of Congo

Abstract

In the construction industry, delay penalties are usually applied at the end of the normal contractual period. Those penalties, daily in general, are of two types: linear monotonous delay penalties and gradual delay penalties. Usually penalties are fixed without considering the real size of the project, both by its initial overall cost and by its length. In the ordinary classic method, we focus on determining the threshold amount of delay penalties, which enables to determine the period of the contract cancellation. However, it is often possible to find cancellation date excessively elongated, exceeding in some cases the initial term of the project, in particular for relative low delay penalties. In this work, we propose a new approach for calculating delay penalties, which on the contrary focuses on ascertaining the cancellation date and then deducing the total amount of delay penalties. It is a gradual method which allows to estimate the threshold total amount of first level (stage 1) delay penalties which are low enough, then those of the second level (stage 2) associated with higher penalties, and if necessary those of the third level (stage 3) sometimes lower or higher than the previous ones. This gives us various possibilities of divisions which enable both the owner and the contractor to agree in advance on a given type of delay penalties variation on signing contract. We also indicate how to know if a delay penalty is too high or, conversely, too low by comparing the value of the daily delay penalty in stage 1 with that classical uniform delay penalty. Key words: Delay penalties, cancellation date, delay threshold, construction project.