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...

Seven Early Warning Signs of a Problem Construction Contract

As a construction contractor, the abject absence of all normal good faith and fair dealing by your construction owner spells trouble in vivid capital letters!  If any of the following warning signs seem familiar, you may be about to suffer extreme profit losses, or worse… Unreasonably delayed submittal approval, The owner’s unexplained unwillingness to cooperate, Job costs far in excess of those reasonably expected, Unfair disapproval of your ordinary and customary contract performance procedures, Owner refusal to address your request for equitable adjustment, The same with respect to owner design problems, Sudden unexplained ineffectiveness of your ordinarily effective job manager. If you are experiencing one or more of the early warning signs listed above on your government construction contract, I strongly encourage you to contact me for a no-fee conference, preliminary claim investigation and construction claim expert opinion on your special...

Eichleay Formula Loophole Could Cost Government Contractors Hundreds of Thousands

The Eichleay formula helps contractors recoup additional costs caused by government delays. Construction claims expert Glen Eaton reveals a big loophole in the rules, however, that occurs between contract award and actual work beginning that could end up costing contractors hundreds of thousands of dollars in home office overhead expenses.   “When the government decides to put a contracted construction project on hold, contractors incur expenses while they wait,” said Eaton. “From equipment rental to home office overhead costs, unfunded expenses start mounting the moment work is halted.” TUSCALOOSA, AL (PRWEB) NOVEMBER 24, 2009 – According to construction claims expert, Glen L. Eaton, a formula that has long been the standard for calculating costs incurred by contractors due to government delays has a major loophole that could end up costing government contractors hundreds of thousands of dollars. “When the government decides to put a contracted construction project on hold, contractors incur expenses while they wait,” said Eaton. “From equipment rental to home office overhead costs, unfunded expenses start mounting the moment work is halted.” When such a delay occurs, the standard procedure is for the contractor and the government to come to an amicable agreement – a contract price adjustment – based on the additional overhead expenses that the delay causes. Legal precedent has established a formula for calculating the amount due a contractor for home office overhead during such a delay and suspension, the Eichleay Formula. “The problem,” said Eaton, “is that the Eichleay formula calculates overhead expenses as a percentage; the ratio of the delayed contract’s billings to the billings of the entire business. Billings, of course,...

Differing Site Conditions – An Introduction for Federal Construction Contractors

First, please be acutely aware of what this is, and is not. It is not authoritative legal advice. Only skilled construction attorneys are equipped to furnish such. However, construction, per se, and construction legal issues, are inexorably intertwined, increasingly more so as time passes. To prevail in an expensive owner-caused performance delay, for example, absolutely nothing replaces contractor early awareness of its entitlement to recover its money damages…and the factual and legal basis for that entitlement. That turns on the facts at issue and how they apply to the specific theory of damages, which, in turn, permits the contractor’s entitlement to recover its damages. Contracting is complicated and thus dispute-prone. You as a contractor have a better early-on grasp of the facts than any attorney or construction consultant possibly could at that stage of the problem. Therefore, some rudimentary understanding of the legal side of your entitlement to damages – resulting from the facts at the root of the problem – will empower you, the contractor, toward making early, timely, notification to your facility owner, and taking other important initial action. Perhaps the most commonly occurring set of disruption and delay issues at construction sites comes under the heading of “differing site conditions” (DSC). Things found by the contractor after contract award that are different than represented by the contract documents are a “Type I Differing Site Condition”. Instead, the condition may fall under the heading of a “Type II Differing Site Condition”; conditions unusual in nature that differ in a materially physical way from those normally encountered in similar contracts. All federal construction contracts contain some form of...

Damages Calculations in Construction Contract Claims

As a construction contractor, you might possibly recognize yourself here. You’ve just discovered that your contract performance costs have gone through the job trailer roof.  Hopes of a decent profit have tanked. Your owner has been increasingly dismissive and indifferent to the culprit problems causing this, namely, actions and inaction of your owner’s agents. Should you engage a construction claims expert to address this serious issue, it will be no surprise that the cost recovery calculations – money damages – is the section in the Expert Claims Report you want to see first. Just as failure to adequately prove the “causal connection” spells failure of the entire construction claim, lack of proper attention to identification of damages – and the same for proof of damages and their accurate and professional calculation thus identified – also spells sure defeat of the contract claims. Every contractor-bidder must firmly accept that a contractor is always responsible for the cost of contract performance within reasonably strict accordance to the contract bid documents. The same applies to performance sequence either specified and/or in accord with the construction schedule agreed upon by the parties. On the other hand, contract damages – unanticipated costs the responsibility of others giving rise to contractor claims – occur more frequently than not. These costs can be broadly categorized into two classes, namely: Unanticipated quantity or quality changes in the specified work Unanticipated changes in the method or sequence of the specified work The first is easy for the contractor to recognize. For example, the amount of unsuitable excavation as indicated in the contract documents turns out to be vastly...

What is Equitable Adjustment?

Equitable adjustment (request for equitable adjustment – REA in government contracting parlance) – is a “term of art” used to describe a reasonable and fair contract price and time adjustment to the contract of a government contractor. In government contracting, a formal request for equitable adjustment is distinguishable from a formal contract claim. A contract claim is directed to the government contracting officer. The contracting officer is not required to negotiate with the contractor. In due course, usually months later, she may issue the contractor her formal decision. Amazingly, the contracting officer is not required to issue any decision. In the event of a negative decision (or no decision), the contractor is then faced with making a legal appeal in but one of only two venues; the appropriate Federal Board of Contract Appeals, or the U.S. Court of Federal Claims. In this event, you will not be permitted to include in the claim the fees of your construction claims expert for any of his work connected with the litigation. On the other hand, if the contractor styles its claim for money damages as a REA, and ultimately actually pursues negotiated settlement of the dispute in good faith with the government, the consulting fee of your construction claims expert is a permissible cost, as it is considered to be a legitimate cost of contract administration, and thus to the benefit of the government as well as the contractor. Failing to reach a satisfactory outcome, the contractor may yet still begin the litigation process by submitting the issue as a formal contract claim to the contracting officer. Packaged correctly, little or...