Holloway Consulting is a Construction Consultant and Expert Firm that stays abreast of the cases that affect our clients’ businesses. This page is the fourth in our series on contractor claims for home office overhead or field office overhead:
Construction Claims Consultants and Experts
Home Office and Field Overhead Claims
Replacement Work
In rejecting this argument, which improperly focused on Melka’s ability “to take on any other work during the delay period”, the court held that the proper analysis is whether Melka was able to take on “replacement work”, not just additional work, and whether this “replacement work” produced sufficient overhead costs to replace that of the suspended contract. The court stressed that this was a “heavy burden” for the government to establish and that “in very few cases where the contractor can demonstrate it was on standby during the suspension will the government be able to demonstrate that it was not impractical for the contractor to take on replacement work.
The court then confirmed that merely continuing “normal operations” – performing other work and bidding on other contracts – doesn’t by itself defeat recovery. In fact, unless the contracts bid on could be commenced and completed within the delay period, they aren’t proper to consider. Rather, a “quantitative analysis”, including the relative dollar size of the projects at issue and the timing and duration of these projects, must be used to determine whether a project is true “replacement work”, as opposed to “additional work” in the ordinary course of business.
However, the court cautioned that the government need not show that the contractor actually obtained replacement work – but merely that it was not “impractical” to do so. The government is likewise free to establish that the contractor’s inability to obtain replacement work was due to circumstances other than the government-caused delay. For instance, the government argued that it was bad weather that caused Melka’s inability to obtain or perform replacement work.
Work Suspension
With regard to the final time period, February 2 to March 30, 1995, the court denied Melka’s entitlement to home office overhead because, subsequent to the government’s February 2 notice that the contract would be suspended for 8 months, the certainty of the suspension period prevented Melka from establishing the necessary requirement that it was on standby for an “indefinite duration”.
Read our next expert page on contractor home office overhead claims.
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