Title: Fairfax County Redevelopment v. Worcester Bros.

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
FAIRFAX COUNTY REDEVELOPMENT AND 
HOUSING AUTHORITY 
 
OPINION BY 
v.  Record No. 980731 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
February 26, 1999 
WORCESTER BROTHERS COMPANY, INC. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Arthur B. Vieregg, Jr., Judge 
 
In this appeal, we consider whether the trial court’s award 
of unabsorbed home office expenses to the contractor on a public 
construction project following an unreasonable delay by the 
contracting government agency was based upon sufficient proof of 
the existence and amount of those damages. 
BACKGROUND
Under well established principles, we recount only those 
facts relevant to our resolution of the appeal.  On September 
14, 1995, the Fairfax County Redevelopment and Housing Authority 
(the Authority) entered into a contract with Worcester Brothers 
Company, Inc. (Worcester Brothers), a general construction 
contractor, for site renovations and improvements of Washington 
Plaza in Lake Anne Village (the project) in Reston. 
The Authority had originally solicited bids for the project 
based on a projected start date in July 1995, with completion of 
the work in 150 calendar days from the notice to proceed.  Thus, 
the proposed date of substantial completion at the time bids 
were solicited was mid-December 1995.  Worcester Brothers based 
its bid on these conditions.  However, because the Authority did 
not award the contract to Worcester Brothers until September 14, 
1995, the substantial completion date for the project was moved 
back to mid-February 1996. 
It is not disputed that at the time Worcester Brothers 
commenced work on the project, the Authority had not yet 
obtained the necessary clearances from an adjoining property 
owner to allow work to proceed on a portion of the project site.  
The Authority did not obtain the clearances until March 6, 1996. 
After the work was completed, Worcester Brothers filed 
notice of potential change #15 (NPC 15) with the Authority’s 
architect seeking additional payment for field office expenses 
incurred on the job site due to the Authority’s delay in 
obtaining the clearances.  Worcester Brothers also claimed it 
had unabsorbed home office expenses attributable to the delay.  
In NPC 15, Worcester Brothers calculated its additional field 
office expenses based upon its daily field office overhead rate 
multiplied by the 98 days of delay it attributed to the 
Authority.1  To calculate its unabsorbed home office expenses, 
                     
1This figure was later revised to represent the actual costs 
Worcester Brothers incurred in maintaining its workforce on the 
project site during the delay period.  
 2
Worcester Brothers used the so-called “Eichleay formula,”2 to 
determine a daily home office overhead rate and multiplied that 
rate by the same 98 days of delay.  The architect, acting on 
behalf of the Authority, denied the claims made in NPC 15. 
On November 4, 1996, Worcester Brothers filed a motion for 
judgment against the Authority seeking damages for breach of 
contract based upon the failure to pay NPC 15.3  The Authority 
filed an answer denying the allegations of the motion for 
judgment and raising as an affirmative defense the claim that 
“[h]ome office damages based on the Eichleay formula are 
prohibited by Virginia law.” 
At trial, Worcester Brothers contended that during the 
delay it incurred both additional field office expenses as a 
result of having to maintain its personnel at the job site and 
unabsorbed home office expenses.  It presented evidence of its 
actual field office expenses related to the delay in the amount 
                     
2The Eichleay formula is “the prevailing method” used for 
calculating a contractor’s home office expenses attributable to 
a government-caused delay on a federal contract.  Capital 
Electric Company v. United States, 729 F.2d 743, 744 (Fed. Cir. 
1984). 
 
3Worcester Brothers also claimed damages resulting from the 
cost of snow removal and protecting its equipment from winter 
weather as a result of the delay in awarding the contract.  The 
trial court dismissed this claim, and Worcester Brothers has not 
assigned cross-error challenging that ruling. 
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of $46,359.11.  Worcester Brothers’ accounting system did not 
allocate its home office expenses to particular contracts.  
However, Joseph P. Noonan, Worcester Brothers’ president, 
testified that the unabsorbed home office expenses attributable 
to the delay amounted to $34,495.89.  According to Noonan, that 
figure was calculated from statements prepared by Worcester 
Brothers’ accountants reflecting the total general and 
administrative expenses of the company during the relevant 
contract period and the application of the Eichleay formula to 
those expenses. 
The Authority asserted numerous objections to Worcester 
Brothers’ evidence of damages.  Pertinent to the issue presented 
on appeal, the Authority contended that Worcester Brothers had 
proven no actual damages as a result of the delay.  It contended 
that the Eichleay formula calculation did not constitute proof 
of actual damages to a reasonable degree of certainty, but, 
rather, is merely a method for determining the amount of 
unabsorbed home office expenses attributable to a particular 
contract once the existence of such damages has been proven by 
other evidence.  The Authority contended that Worcester Brothers 
had not shown that its workforce was actually idle as a result 
of the delay in obtaining the clearances and, thus, that none of 
its home office expenses was incurred as a result of the delay.  
Moreover, the Authority contended that the Eichleay formula was 
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“totally and wholly irrelevant” to “a contract governed by state 
law.” 
At the conclusion of the evidence, the trial court 
addressed the Authority’s contentions and reasoned that in order 
to succeed on a breach of contract damage claim for unabsorbed 
home office expenses resulting from a delay, the contractor was 
first required to show that it had incurred such damages by 
establishing that the government had caused the delay; that the 
contractor’s workforce was placed on standby as a result; and 
that the contractor was not free to engage in work on other 
projects during the delay.  The trial court then found that the 
Authority’s delay was “manifest on this record” and was 
“egregious” and “frankly inexcusable.”  The trial court further 
found that Worcester Brothers’ workforce had been on “standby” 
because the Authority “never could advise the contractor that 
the area would not be available until a particular date.  
Instead it was a rolling deadline.”  Finally, the trial court 
found that the “rolling deadline” also inhibited Worcester 
Brothers from seeking other contracts, and thereby minimizing 
the damage caused by the delay, since it could not be assured of 
the availability of its workforce for another project. 
Having found that Worcester Brothers had satisfied its 
initial “burden of proving [home office] damages with reasonable 
certainty,” the trial court turned to the question whether the 
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Eichleay formula could be used to calculate the amount of those 
damages.  Recognizing that other courts had found the Eichleay 
formula to be “a fair way of approximating” such damages, the 
trial court noted that after auditing Worcester Brothers’ books, 
the Authority did not contend that any of the specific expenses 
were inappropriately claimed and that the Authority’s witnesses 
failed “to present any reasoned analysis of why Eichleay is 
inappropriate.”  Accordingly, the trial court entered judgment 
for Worcester Brothers for both the field office expenses 
($46,359.11) and the unabsorbed home office expenses as 
calculated by the Eichleay formula ($34,495.89).  The trial 
court granted the Authority’s motion to reconsider, and, after 
receiving briefs from the parties, sustained its original 
ruling.  We awarded the Authority this appeal. 
DISCUSSION
The Authority does not challenge the trial court’s 
determination that the Authority was liable for damages caused 
by the delay.  Nor does the Authority challenge that portion of 
the judgment attributable to field office expenses.  
Accordingly, our discussion is necessarily limited to a 
determination of whether, as specified by the Authority’s 
assignment of error, “[t]he trial court erred in finding that a 
contractor had proved its home office damages with reasonable 
certainty.”  (Emphasis added.)  We agree with the trial court’s 
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reasoning that the resolution of this issue requires that we 
first consider whether Worcester Brothers established that it 
suffered damages in the form of unabsorbed home office expenses 
attributable to the Authority’s delay, and, if so, whether there 
was adequate proof of the amount of those damages. 
Home office expenses, commonly called overhead, include 
those costs that a contractor must expend for the benefit of its 
business as a whole.  These expenses include, for example, the 
salaries of office staff, accounting expenses, dues and 
subscriptions, equipment costs, and utility services.  
Unabsorbed home office expenses comprise “those overhead costs 
needlessly consumed by a partially or totally idle contractor.  
A contractor continues to incur overhead costs during periods of 
reduced activity or delay on a particular contract.  When this 
occurs, the ‘reduced activity’ contract no longer ‘absorbs’ its 
share of overhead costs.”  Michael W. Kauffman and Craig A. 
Holman, The Eichleay Formula: A Resilient Means for Recovering 
Unabsorbed Overhead, 24 Pub. Contr. L.J. 319, 321 
(1995)(footnotes omitted). 
When a breach by one party imposes a delay on the ability 
of the other party to perform its obligations under a contract, 
“the damages are to be measured by the direct cost of all labor 
and material . . . plus fair and reasonable overhead expenses 
properly chargeable . . . during the reasonable time required” 
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to complete performance.  E.I. duPont deNemours & Co. v. 
Universal Moulded Prod., 191 Va. 525, 581, 62 S.E.2d 233, 259 
(1950)(emphasis added).  In such cases, while the plaintiff must 
prove its damages with reasonable certainty, “‘[a]n absolute 
certainty as to the amount of the damages is not essential when 
the existence of a loss has been established.  The quantum may 
be fixed when the facts and circumstances are such as to permit 
. . . an intelligent and probable estimate thereof.’”  Pebble 
Building Co. v. G.J. Hopkins, Inc., 223 Va. 188, 191, 288 S.E.2d 
437, 438 (1982)(citation omitted). 
We recognize that not every instance of a delay caused by 
the other party to a contract will result in a contractor 
incurring either direct or overhead damages.  However, where the 
evidence shows that a contractor has incurred direct damages as 
a result of the delay such as additional cost of labor and 
material, the question whether the contractor also suffered 
unabsorbed overhead damages necessarily must be determined from 
the facts and circumstances of the individual case.  It is not 
necessary for the contractor to show that its overhead was 
increased as a result of the delay, but only that it could not 
otherwise reasonably recoup its pro rata home office expenses 
incurred while its workforce was idled by the delay. 
Here, the evidence showed that Worcester Brothers incurred 
actual direct damages as a result of having to maintain its 
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personnel on the job site far beyond the anticipated date of 
substantial completion.  The record supports the trial court’s 
finding that the Authority was responsible for a delay that 
caused Worcester Brothers’ workforce to be “on standby” and this 
further prohibited Worcester Brothers from recouping its 
unabsorbed home office expenses by seeking other contracts 
during the delay period.  Accordingly, we agree with the trial 
court’s ruling that Worcester Brothers met its burden of proof 
with respect to the existence of unabsorbed home office expenses 
attributable to the Authority’s delay. 
The Authority contends, however, that even if Worcester 
Brothers proved that it incurred unabsorbed home office expenses 
as a result of the Authority’s delay, the trial court erred in 
accepting the Eichleay formula as the method for determining the 
amount of these expenses.  The Authority asserts that the 
contract provides that disputes between the parties will be 
governed by Virginia law and, since no legislative act, 
administrative rule, or case law in Virginia has “adopt[ed] the 
use of the Eichleay formula in claims against public bodies in 
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Virginia,” the use of the formula “was not within the parties’ 
contemplation at the time the contract was executed.”4
The Authority is correct in noting that use of the Eichleay 
formula has not been previously approved in this Commonwealth by 
legislative or administrative act, nor has its use been 
addressed in a published appellate court decision relating to a 
public contract.  However, we are not persuaded by the 
Authority’s contention that a lack of prior authoritative 
application of the Eichleay formula to a Virginia public 
contract prevents its application in this instance.  The 
Eichleay formula is not a legal standard that must be formally 
approved or adopted; rather, it is merely a mathematical method 
of prorating a contractor’s total overhead expenses for a 
particular contract.5  As such, the question before the trial 
                     
 
4On brief, the Authority asserts that certain items were 
improperly included in the overhead expenses used by Worcester 
Brothers in calculating its damages.  At trial, the Authority 
did not object to the introduction of the accounting records on 
this ground.  Accordingly, that issue is not before us.  Rule 
5:25.  We also reject the Authority’s contention that the 
contract provision for a 15% mark-up for “changes in the work” 
should be applied to field office damages to determine a 
liquidated award of home office expenses.  Assuming that this 
argument can be subsumed within the assignment of error, we are 
not persuaded that the 15% mark-up applies to an award of 
damages for delay. 
 
5To make that proration, the total amount billed on the 
particular contract by the contractor (Bc) is divided by the 
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court was not whether, in the absence of an express term, the 
parties contemplated using the Eichleay formula, or any other 
method of calculating unabsorbed overhead damages, but whether 
the resulting quantum was “an intelligent and probable estimate” 
of the actual damages.  Pebble, 223 Va. at 191, 228 S.E.2d at 
438. 
As an abstract proposition, the Eichleay formula has been 
criticized as an inadequate substitute for direct evidence of 
the actual amount of damages and “no less speculative” than 
other unsupported opinion evidence simply “because it was cast 
in a mathematical milieu.”  Berley Indus., Inc. v. City of New 
York, 385 N.E.2d 281, 283 (N.Y. 1978).  In Berley, the New York 
                                                                  
contractor’s total billings during the contract period (Bt) and 
this quotient is then multiplied by the contractor’s home office 
expenses attributable to the contract period (Ht) to determine 
the amount of home office expenses allocable to the contract.  
Next, the amount of home office expenses allocable to the 
contract is divided by the total number of days of the 
contractor’s performance under the contract (Dt) to determine a 
daily contract home office expense rate.  Finally, the daily 
contract home office expense rate is multiplied by the number of 
days of delay (Dd) to determine the amount of damages (A).  See 
Capital Electric, 729 F.2d at 747.  This method of proration is 
the Eichleay formula in its most basic application, and may be 
stated mathematically in this way: 
 
Bc
⎯ × Ht
Bt
⎯⎯⎯⎯ × Dd = A 
   Dt  
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Court of Appeals rejected the use of the Eichleay formula as an 
“administrative convenience,” where there was no supporting 
evidence that any of the home office expenses were attributable 
to the delay.  Id.
Distinguishing Berley, the Florida District Court of 
Appeals held that use of the Eichleay formula for calculating 
unabsorbed home office expenses attributable to a delay is 
proper so long as there is competent evidence of actual damage 
having been sustained by the party seeking relief.  Broward 
County v. Russell, Inc., 589 So.2d 983, 984 (Fla. Dist. Ct. App. 
1991).  Similarly, other jurisdictions have held that where 
there is sufficient proof that the plaintiff has suffered 
damages as a result of the delay, the Eichleay formula affords a 
reasonable basis for estimating the amount of those damages with 
respect to unabsorbed home office expenses.  See, e.g., Conti 
Corp. v. Ohio Dept. of Admin. Serv’s, 629 N.E.2d 1073, 1077 
(Ohio Ct. App. 1993); Golf Landscaping, Inc. v. Century Const. 
Co., 696 P.2d 590, 593 (Wash. Ct. App. 1984). 
We are of opinion that the rationale of the latter cases is 
in accord with the general principles of law applicable to 
proving damages for delay as outlined in the duPont and Pebble, 
cases.  Accordingly, where, as here, there is evidence that a 
contractor has suffered actual damages as a result of an 
unreasonable owner-caused delay, the Eichleay formula is an 
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acceptable method, though not the only possible method, of 
calculating the portion of home office expenses attributable to 
delay.  Cf. Southern New England Contracting Co. v. State, 345 
A.2d. 550, 559-60 (Conn. 1974); PDM Plumbing & Heating, Inc. v. 
Findlen, 431 N.E.2d 594, 595 (Mass. Ct. App. 1982). 
In recognizing the adequacy of the evidence in this case to 
support the use of the Eichleay formula to determine unabsorbed 
overhead damages for the delay in this contract, we do not adopt 
it as the standard for determining such damages generally.  
Rather, as with any fact-specific question, the individual 
circumstances of a given case will determine whether “an 
intelligent and probable estimate” of such damages has been 
proven.  Pebble, 223 Va. at 191, 228 S.E.2d at 438. 
CONCLUSION
For the reasons stated above, we will affirm the judgment 
of the trial court. 
Affirmed. 
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