Holloway Consulting is a Construction Consulting firm that stays abreast of the cases that affect our clients’ businesses. This page is the fifth in our expert series on how contractor claims for home office overhead and usage of the Eicheay Formula are affected by the Melka Marine decision:

Construction Consulting

Home Office Overhead Claims

Melka Marine – Eichleay

KEY ISSUES

While Melka provides some additional clarity on several key issues relating to entitlement to home office overhead under Eichleay, questions, of course, remain on this much litigated issue. Among other things, Melka confirms that:

(1) standby requires a total cessation of work on the project, not a partial suspension;

(2) if the government advises the contractor of a definite period of time for the suspension and permits the contractor to demobilize, no entitlement exists because the suspension is not of “indefinite” duration;

(3) to defeat entitlement, the government must show that true replacement work was available, not merely additional work or that the contractor was bidding work in the normal course of business;

(4) and, true replacement work must be work that could be performed during the suspension period, not simply bid on.

However, one can question the reasonableness of the Court’s determination with regard to the third time period that, in effect, upon receipt of the government’s February 2 notice of the large, but definitive suspension that Melka’s entitlement to unabsorbed home office overhead immediately evaporated.

Is it reasonable to assume that management’s attention to the project and the corresponding financial commitment (overhead expense) immediately came to a screeching halt on February 2?

CONCLUSION

In any event, it should be emphasized that the experts determination of entitlement to recovery under Eichleay is not the “end all-be-all” on a delayed project. With regard to projects where entitlement is clear, oftentimes a closer examination of the overhead pools making up the claim is warranted. Certain overhead components are routinely disallowed by regulation and variable overhead, as opposed to fixed overhead, should be removed. Moreover, on government projects, Eichleay may not be the appropriate calculation for additional costs associated with project delay – as opposed to a suspension of work. Finally, on non-federal projects, other recognized formulas may be more appropriate for the quantification of delay and/or suspension damages.

Read our next expert page on contractor home office overhead claims.

The Holloway Consulting Group, LLC
Construction Home Office Overhead Claims Consultants and Expert Witness
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Lakewood, CO 80228-2701
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Email: steve.holloway@disputesinconstruction.com
Blog: disputesinconstruction.com
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Disputes in Construction – Holloway Consulting