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Contractor home office overhead expenses are a fixed cost that is usually "recovered" by a percentage application to all projects in progress (sales). Therefore, if one of many projects is delayed, this does not in itself result in an increase in the fixed overhead expense. But if a project is delayed for an appreciable period of time and no income is being generated from the project in question (such as a complete suspension of work), then the perecentage of overhead recovery assigned to other projects will increase. Unless of course other projects are acquired during this time period to offset the lack of recovery for fixed home office overhead expenses from the project in question. I believe the duration of suspension, its magnitude (complete or partial), and contractor ability to acquire additional work will determine whether the Eichley formula is applicable.

First, one should not assume that Home Office Overhead and Eichleay are synonomous. Eichleay is but one recovery method. It has never been in great favor as the use of the formula ALWAYS returns with delay damages. Playng "what if" on your computer will show that it will return damages both above and below the actual impact but again, it ALWAYS indicates damages. It is neat and simple though, so it has had a great shelf life.

The second issue to be clear on is whether one is talking about a suspended period or a working delay. The impact of these two different situations can and should be mesured using different methods. Considering Eichley as a "one size fits all" solution is doomed theoretically and in the courts.

There are other methods that can be used when the situation warrants it. The concepts as noted by Manshul or Carteret are two examples. The Mansul concept, if not the case itself, has long been advocated by the gov't in their fight against Eichleay. It will not get you unabsorbed home office overhead during a suspended period, but if it is a working delay, it will idenify and return a damage amount.

Other methods (Allegheny, Carteret, Hudson) can also calculate damages but the more theoretical you get, the more difficult it is to make and sustain the argument in court. In any event, home office overhead impacts are like any other damage: the first thing to prove it that there is a problem at all.

I like to read more about the methods noted by Mr. Allen. Perhaps he could write an article in Construction Claims Advisor, further explaining those methods. What do you think editors?

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