Compensation for extra preliminary and general (P & G) cost arising from delays, variations and disruptions: the palmiet pumped storage scheme

Abstract Underground construction is notorious for high cost and time overruns. This is probably inherent in the nature of the work, which usually involves high risks on the part of both the employer and the contractor, in view of the extent of the uncertainties with regard to such factors as geology, appropriate design and performance. The main civil works constructed for South Africa's Palmiet Pumped Storage Scheme between 1983 and 1987 have demonstrated that with early identification and proper management of the risks and costs, the value of cost and time overruns can be curtailed to a very large extent. This paper describes broadly the process adopted on the project, focusing in particular on the successful management at Palmiet of the financial risks pertaining to the cost of the contractor's overheads, establishment, supervision and plant in a contract that was known to be subject to variations, extensions and delays. This was achieved by appropriate scheduling, provisions for payment and on-site management of these cost items, usually described broadly as the Preliminary and General (P & G) Items. These items accounted for 34% of the value of the contract.