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

Heading: Alternatives to Eichleay Disapproved

Text: 23 Wickham relies on Miles Construction, VABCA No. 1674, 84-1 BCA p 16,967, 1983 WL 13694 (Nov. 30, 1983), to support its argument that the Eichleay formula should be used to allocate overhead expenses only when more accurate proof of unabsorbed overhead expenses is unavailable. In Miles the contractor testified that during the contract period, he was performing no work other than the delayed government contract at issue. In addition, his financial statements indicated that he received no other income during the contract period. According to the Eichleay formula then, 100% of the contractor's overhead cost incurred during the contract period was allocable to the delayed contract. Id. at 84,375, 1960 WL 538; see note 3, supra. However, the contractor's financial records indicated purchases for undisclosed job accounts and unexplained labor costs during the delay period. The Miles Veterans Board concluded that [g]iven these unexplained activities, we cannot conclude that 100% of Appellant's overhead should be allocated to the VA contract.... Accordingly, we believe this situation justifies use of a 'jury verdict' approach. Miles Constr., 84-1 BCA p 16,967 at 84,375, 1983 WL 13694. The Miles Board decided that [g]iven the circumstances it was reasonable to allocate 90% of the overhead incurred to the delayed contract. Id. 24 Both the facts and the analysis of Miles are distinguishable from this case. The Miles Board decreased the award to the contractor from the amount calculated according to the Eichleay formula because the contractor's financial statements indicated that he may have performed undisclosed work during the delay period. The implication of the undisclosed work is that the contractor may have received undisclosed income during the contract period, which would have decreased the percentage of overhead allocable to the delayed contract. The Miles Board did not deviate from the Eichleay formula based on the rationale that any portion of the contractor's overhead was directly attributable to or caused by the delayed contract. Thus, Miles does not support Wickham's position. 25 In addition, the jury verdict approach of Miles has not subsequently been followed by any board, including the Veterans Board. Moreover, board decisions since Miles, including those of the Veterans Board, have uniformly rejected the use of other formulas in place of the Eichleay formula. See Bridgewater Constr. Corp., VABCA No. 2956, 91-3 BCA p 24,272, 1991 WL 160881 (Aug. 12, 1991) (rejecting an alternative calculation that gave a significantly higher daily rate of overhead than the Eichleay formula); Berkeley Constr. Co., VABCA No. 1962, 88-1 BCA p 20,259, 1987 WL 45887 (Oct. 27, 1987) (rejecting a total cost formula); G.S. & L. Mechanical & Constr. Inc., DOT CAB No. 1640, 86-3 BCA p 19,026, 1986 WL 19793 (May 22, 1986) (rejecting a modified Eichleay formula); Stephenson Assoc., Inc., GSBCA No. 6573, 86-3 BCA p 19,071, 1986 WL 19955 (Mar. 27, 1986) (rejecting a simulated work formula). 26 Finally, beyond concluding that Miles does not support Wickham's position, we hold that the jury verdict approach which was used in Miles and which Wickham effectively asks us to apply here is an improper method for allocating overhead to a delayed government contract to compensate a contractor for unabsorbed overhead. When a contractor satisfies the prerequisites for application of the Eichleay formula, that formula is the exclusive means available for calculating unabsorbed overhead to the delayed contract. 9 27 Due to the nature of overhead expenses, a precise method for allocating overhead to specific contracts cannot be devised, but the Eichleay formula provides a feasible, equitable and predictable method of compensating a contractor for unabsorbed overhead. By allocating a pro-rata share of the overhead expense to the delayed contract, the Eichleay formula fairly distributes the overhead. By reimbursing the contractor based on the length of the delay, the Eichleay formula compensates the contractor, but only for unabsorbed overhead, recognizing that a portion of the overhead allocable to the delayed contract will be absorbed by the direct costs of that contract. Thus it adequately compensates the contractor without unduly burdening the taxpayers. 28 In sum, because it is impossible to determine the amount of unabsorbed overhead caused by the delay of any particular contract, and because the Eichleay formula provides an equitable method of compensating a contractor for unabsorbed overhead without costing taxpayers more than they should pay, we hold that the Eichleay formula is the exclusive means for compensating a contractor for unabsorbed overhead when it otherwise meets the Eichleay prerequisites.