Unabsorbed or Under-Absorbed Home Office Overhead

A Grand Contractor Scam, Figment of Imagination, or Instead a Provable Element of Money Damages Recovery in Project Delay, Disruption, Acceleration, Extended Performance, and Owner Work Suspension Construction Claims?   As a construction engineer, construction claims expert consultant and former Government general construction contractor it’s amazing to see how much misinformation exists about a contractor’s unabsorbed overhead (some call it “G&A”; general and administrative) costs on a delayed, disrupted or suspended contract. Recently Bruce Jervis, in his forum “ConstructionPro Network”, posed a question about this controversial element of contractors’ claims and invited responses from readers. See: http://constructionpronet.com/Content_Free/2016-01-29CPW.aspx . The first person to respond, Mr. James Mills, stated: “I don’t believe in the under-absorbed overhead costs based on mathematical formulae. I have been a Contract’s Administrator with the Public Transit Industry for 30 years and have had to negotiate Eichleay based claims numerous times. The Contractor should be required to support delay cost impacts the way Transit Owners have to support their basis for liquidated damages- pre-bid.” One might easily infer that Mr. Mills not only believes the mere calculation of under-absorbed overhead damages by means of the Eichleay formula poisons the contractor’s entitlement, but that maybe he also thinks contractors’ unabsorbed G&A does not even exist. However, that would be unfair. I will assume he merely means that the use of the Eichleay formula to quantify the damages nullifies the contractor’s otherwise clear entitlement to the damages. The Eichleay Formula is not financial magic. It is merely a means to prorate – allocate – the contractor’s home-office overhead pool funding to its various projects, including the disrupted project. The...