Court of Claims Clarifies Eichleay Formula

Kegler Brown Construction Newsletter

Judge Shoemaker of the Ohio Court of Claims recently issued a decision stating that Eichleay forumla unabsorbed home office overhead claims are recoverable in Ohio when the contractor establishes that:

  1. The delay was caused by the government;
  2. The contractor was "on standby"; and
  3. The contractor could not take on additional work.

Once the contractor establishes its initial case on these factors, the burden shifts to the State to prove that the contractor either reduced its overhead or took on other work during the delay.

In analyzing the applicability of Eichleay to the facts of this case, the Court noted that:

  • The contractor's success in obtaining other contracts during the delay period does not prevent it from recovering its home office overhead.
  • In this circumstance, it was not practical for the contractor to reduce or reallocate its home office overhead, either during the delay period or the extension period.
  • The fact that this ODOT contractor might not be entitled to a weather-related time extension during the winter months does not necessarily keep the contractor from recovering his additional delay-related overhead costs during the "winter shutdown" period.
  • Overhead paid in other change orders should not be deducted from the home office overhead claim as these altered conditions could not have been contemplated at the time of bid.
  • In calculating the daily overhead rate, the State cannot deduct certain overhead expenses required of federal contractors, as this was a State project.

The Court not only awarded extended home office overhead, pursuant to the Eichleay formula, but also awarded idle equipment costs incurred during the construction suspension, prejudgment interest and additional bond costs. The Court refused to compensate the contractor for its lost opportunity (i.e., lost bids) associated with the extended time its equipment was tied up on this delayed project. Complete General Construction v. ODOT, Case No. 97-01180, Decision filed 11/18/98.

This case increases the likelihood that contractors will be able to recover extended home office overhead and other delay damages against the State of Ohio.