Delay sensitivity, Overrun and Liquidated Damages (Manual and Excel Template)
Originally published: 27/03/2020 11:57
Publication number: ELQ-61945-1
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Delay sensitivity, Overrun and Liquidated Damages (Manual and Excel Template)

This manual and Excel template provide a clear way to model a delay in construction, cost overrun and Liquidated damages

Description
One of the main risks in any project is the construction delay risk.

Any project finance model should have the ability to run sensitivity on the duration of the construction program and test the impact of any cost overrun on the project results.

The financial model should also size and evaluate the sufficiency of different penalties and instruments that are aimed to respond to delayed costs claims.
This manual cover:
- The basics of what are the circumstances that can cause a delay in construction,
- different parameters and mechanics that needs to be built in in any typical financial model to allow sensitivity on the construction program
- it also explains different liquidated damages that needs to be included in the financial model

The Excel template contains the below sheets:
- Guide sheet contains the color codes used in the model
- Input sheet contain the assumptions needed to perform delay sensitivity. assumptions are categorized by type and mainly:
Timing assumptions: Use should enter the key project dates like financial close date, construction start date, duration of construction and duration of projections.

Capital expenditure assumptions: User can enter up to 10 capital cost items and define the all-in cost and the payment schedule of each cost.

Delay Cost Overrun assumptions: for each of the ten cost items defined above, user can define a cost overrun expressed in $per day.

Liquidated damages: User can define liquidated damages that can be claimed from a contractor, define if the project should pay any party in the event of delay and if there are any insurance in place to cover of the construction delay.

Loan terms: model allows for one tranche of debt to cover the construction costs. User can also allow funding of delay overruns from this debt instrument.

After the user has define the assumptions, then the results will be populated in form of charts and tables in the "Dashboard". there are also a number of switches available in Dashboard that enable the user to apply different levels of sensitivities and see the impacts directly in charts and tables.

This Best Practice includes
1 PDF and 1 Excel

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Further information

To model and test the impact of delay in construction and size liquidated damages and insurance instruments to respond to delayed costs claims

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