Opinion ID: 659890
Heading Depth: 3
Heading Rank: 1

Heading: Federal Circuit Law on Eichleay

Text: 13 The Board used the Eichleay formula 3 to calculate the amount of home office overhead costs for which Wickham would be reimbursed due to the GSA-imposed delay. Application of the Eichleay formula requires that compensable delay occurred, and that the contractor could not have taken on any other jobs during the contract period. 4 C.B.C. Enters., Inc. v. United States, 978 F.2d 669, 673-74 (Fed.Cir.1992). Government contractors may use the Eichleay formula to calculate unabsorbed home office overhead when disruption, delay or suspension caused by the government has made uncertain the length of the performance period of the contract. Id. 978 F.2d at 672. The uncertainty often precludes additional jobs. 14 Suspension or delay of contract performance results in interruption or reduction of the contractor's stream of income from payments for direct costs incurred. This in turn causes an interruption or reduction in payments for overhead, derived as a percentage of direct costs, which is set by the contract. Home office overhead costs continue to accrue during such periods, however, regardless of direct contract activity. Consequently, this decrease in payments for direct costs creates unabsorbed overhead, unless home office workers are laid off or given additional work during such suspension or delay periods. When the period of delay is uncertain and the contractor is required by the government to remain ready to resume performance on short notice (referred to as standby), the contractor is effectively prohibited from making reductions in home office staff or facilities or by taking on additional work. See Capital Elec. Co. v. United States, 729 F.2d 743, 748 (Fed.Cir.1984) (Friedman, J., concurring) ([I]t is, ordinarily, not practicable to lay off main office employees during a short and indefinite period of delay.). Other reasons such as exhaustion of bonding capacity may also preclude additional contracts. Interstate Gen. Gov't Contractors, Inc., 12 F.3d 1053 (Fed.Cir.1993). 15 For the purpose of compensating Wickham for the effects of a project delay on home office overhead, the Board properly defined overhead as those costs which are expended for the benefit of the business as a whole and which usually accrue over time. 92-3 BCA p 25,040 at 124,818. The pool to which the Eichleay formula is applied must contain only such indirect costs. 5 Home office costs, by their nature, cannot be traced to any particular contract. Thus, they are properly categorized as overhead costs and, assuming their allowability, included in the Eichleay pool. Were it possible to trace a cost to a particular contract, it would be a direct cost of the contract. C.B.C. Enters., 978 F.2d at 672. 16 The Armed Services Board of Contract Appeals devised the Eichleay formula to provide a fair method for allocating home office overhead costs, otherwise inallocable, to specific contracts. Eichleay Corp., ASBCA No. 5183, 60-2 BCA p 2688, 1960 WL 538 (July 29, 1960), aff'd on reconsid., 61-1 BCA p 2894, 1960 WL 684 (1960). The Eichleay board found it necessary to allocate overhead costs pro-rata because they cannot ordinarily be charged to a particular contract. They represent the cost of general facilities and administration necessary to the performance of all contracts. 60-2 BCA p 2688 at 13,574, 1960 WL 538. Thus, the Eichleay formula seeks to equitably determine allocation of unabsorbed overhead to allow fair compensation of a contractor for government delay. Id. at 13,573, 1960 WL 538. Allocation based on a pro-rata share is necessary because overhead cannot be traced to any particular contract since overhead consists of expenses which benefit and are necessary to every contract. Id.