Opinion ID: 799725
Heading Depth: 2
Heading Rank: 3

Heading: Extended Overhead Damages.

Text: The Authority next asseverates that the bankruptcy court erroneously awarded the debtor extended overhead damages for the three projects. [4] Extended overhead damages compensate a contractor for unabsorbed home-office expenses that accrue during a delay caused by the owner. See Interstate Gen. Gov't Contractors, Inc. v. West, 12 F.3d 1053, 1060 (Fed.Cir.1993); K-Con Bldg. Sys., Inc. v. United States, 97 Fed.Cl. 41, 54 (Fed.Cl.2011). The rationale underlying this species of damages is straightforward: when completion of a project is delayed, the contractor continues to incur home-office costs during the delay period, and extended overhead damages offset those costs when the delay is caused by the owner. See Kanag'Iq Constr. Co. v. United States, 51 Fed.Cl. 38, 48 (Fed.Cl. 2001). There are at least two methods of calculating extended overhead damages. When a project's completion is delayed due to necessary but unanticipated work for which the contractor is entitled to compensation, extended overhead is usually calculated as a percentage of the direct costs of the additional work. See C.B.C. Enters., Inc. v. United States, 978 F.2d 669, 675 (Fed.Cir.1992). This percentage-of-direct-costs approach comports with standard practice in the construction industry under which a contractor normally charges an owner a percentage of a project's direct costs to cover its overhead. See id. at 670; Aniero Concrete Co. v. N.Y.C. Constr. Auth., 308 F.Supp.2d 164, 209 (S.D.N.Y. 2003); Glen M. Darbyshire, Note, Home Office Overhead as Damages for Construction Delays, 17 Ga. L.Rev. 761, 761 (1983). Withal, there are frequently project delays that do not arise from a need to perform extra (compensable) work. In such an instance, the percentage-of-direct-costs approach is untenable. For example, if an owner causes a total work stoppage, there will be no additional direct costs (after all, no work will be ongoing), yet home-office overhead expenses will continue to accrue. Applying the percentage-of-direct-costs approach in those circumstances would, therefore, deny the contractor any overhead damages for the delay period. See Altmayer v. Johnson, 79 F.3d 1129, 1133 (Fed.Cir.1996). To safeguard against this obvious inequity, courts confronted with such a situation have used the Eichleay formula to compute the magnitude of extended overhead damages. See George Hyman Constr. Co. v. Wash. Metro. Area Transit Auth., 816 F.2d 753, 759 (D.C.Cir.1987); Eichleay Corp., ASBCA No. 5183, 60-2 BCA ¶ 2688, 1960 WL 538 (1960). This formula calls for multiplying the average daily overhead costs allocable to a project by the number of days that the project is delayed. See C.B.C. Enters., 978 F.2d at 673. In the case at hand, the bankruptcy court employed Eichleay to calculate the debtor's extended overhead damages. See Redondo I, 411 B.R. at 95, 108. But the court mixed apples and oranges; it used Eichleay across the board even though it found that at least some of the project delays were attributable to extra work for which the debtor was compensated. See, e.g., id. at 95, 97, 104-05. For those delays, extended overhead should have been awarded as a percentage of the direct costs associated with the projects' change orders and extra work orders. See C.B.C. Enters., 978 F.2d at 675 ([I]t is inappropriate to use the Eichleay formula to calculate home office overhead for contract extensions because adequate compensation for overhead expenses may usually be calculated more precisely using a fixed percentage formula.). The bankruptcy court gave no reason for eschewing the conventional percentage-of-direct-costs calculation as a measure of overhead damages in those instances, and no compelling reason is apparent on the face of the record. Without more precise findings or a better explanation, this portion of the awarded damages cannot be allowed to stand. Accordingly, we vacate the awards of Eichleay -based overhead damages and remand to permit recalculation of those awards using the percentage-of-direct-costs method where applicable and using Eichleay only in connection with work stoppages or delays (if any) of the type described above. The direct costs, of course, are a matter of proof. The applicable percentage should be that used in connection with the original contracts (presumably specified in the contract documents). We add a caveat. It is unclear from the record whether all of the project delays were the result of paid extra work. On remand, the bankruptcy court is free to determine whether the debtor sustained uncompensated periods of delay and, if so, whether Eichleay damages are appropriate for any such periods. In resolving this issue, the court should address the Authority's argument that Federal Circuit precedent bars Eichleay damages here because work on the three projects was never fully suspended. [5] See P.J. Dick Inc. v. Principi, 324 F.3d 1364, 1371 (Fed.Cir.2003).