Government Imposed Delay on Construction Projects

If you are a construction contractor and have experienced a government caused construction delay past the contract completion date, you may be entitled to recover some of your home office overhead. One of the costs of a contractor’s business is its office overhead such as office staff salaries, home office expenses, rent, telephone, insurance, supplies, etc. Office overhead cannot be traced to or identified with any particular construction project and therefore cannot be directly charged to a specific contract. When a delay occurs on a government contract and that delay is caused by the government, there is a disruption of the income stream on the affected contract and office overhead is also affected. Office overhead may need to be reallocated, generally using some formula. The most widely recognized and used formula for allocating this overhead in delay cases is what is known as the “Eichleay” formula.
The Eichleay formula has been around for many years and has been tested in the courts both successfully and with no success. However, significant government imposed delays may warrant a consideration of the use of the Eichleay formula. The basic calculation under the formula generally comes at the end of a construction project when all work has been completed. This is necessary because the number of delay days have to be known in order to determine the overhead to be allocated caused by the delay. Additionally, the contractor should focus on the nature of the delay since recovery of Eichleay damages is based upon the contractor showing its performance under the contract was delayed by some action of the government owner.
This article is not intended to go into the components of the calculation under the Eichleay formula. If you think you have been affected by a government imposed delay, let us know and we can work with you in determining your “Eichleay” claim.
/posted by Wayne D. Sturgeon, CPA