Opinion ID: 487111
Heading Depth: 2
Heading Rank: 1

Heading: Home Office Overhead Costs

Text: 10 We begin by stating the extant law regarding recovery of home office overhead costs following a delay or suspension of a contract. The law proceeds from the premise that only some delays and suspensions impose unavoidable loss related to home office overhead on a contractor. If the delay is such that the contractor can neither reduce home office overhead costs (for example, by firing staff) nor take on new work to absorb these costs, he will inevitably suffer a loss of this kind. But if the delay is such that the contractor can either cut home office overhead costs or assume new work to absorb them, he can (and probably will) avoid any damage. Courts therefore have determined that a contractual delay will not automatically entitle a contractor to recover home office overhead costs. See Massman Construction Co. v. Tennessee Valley Authority, 769 F.2d 1114, 1125 (6th Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1947, 90 L.Ed.2d 357 (1986); W.G. Cornell Co. v. Ceramic Coating Co., 626 F.2d 990, 994 (D.C.Cir.1980) (per curiam). In order to recover, the contractor must show that he necessarily suffered actual damage because the nature of the delay made it impractical for him either to undertake the performance of other work, Cornell, 626 F.2d at 994, or to [cut back on] Home Office personnel or facilities, Eichleay Corp., 61-1 B.C.A. at 15,117. A contractor generally meets this requirement by demonstrating that the delay was sudden and of unpredictable duration. See Capital Electric Co. v. United States, 729 F.2d 743, 745-46 & 746 nn. 4-5 (Fed.Cir.1984); Eichleay Corp., 61-1 B.C.A. at 15,117. 11 When a contractor has shown that he is entitled to recover home office overhead costs resulting from a particular contractual delay, the adjudicator of the contractual dispute must determine the exact amount of those costs. Because most contractors simultaneously engage in a wide variety of projects of different magnitude and duration, all of which contribute to the contractor's aggregate home office overhead, this calculation is no simple task. The Armed Services Board of Contract Appeals in Eichleay Corp. devised a method to make the calculation. The total home office overhead for the contract performance period is multiplied by the ratio of contract billings to total company billings; this calculation results in the amount of home office overhead allocable to the contract. That amount is then divided by the number of days of contract performance; the result is the daily home office overhead rate allocable to the contract. That rate is then multiplied by the number of days of delay; the result is the amount of recovery. Since the Armed Services BCA decided Eichleay Corp., numerous courts have approved the use of this formula to calculate the amount of recovery for home office overhead costs. See, e.g., Capital Electric, 729 F.2d at 746-47; Nebraska Public Power District v. Austin Power, Inc., 773 F.2d 960, 972 (8th Cir.1985); Excavation Construction, Inc. v. WMATA, 624 F.Supp. 582 (D.D.C.1984); Golf Landscaping, Inc. v. Century Construction Co., 696 P.2d 590, 592-93 (Wash.Ct.App.1984); Southern New England Contracting Co. v. State, 345 A.2d 550, 558-59 (Conn.1974). 12 Two aspects of the General Manager's determination regarding home office overhead costs are before us on this appeal. First, we must review the General Manager's determination that no recovery of home office overhead costs was proper because Hyman had failed to demonstrate any loss (unavoidable or otherwise). Second, we must consider the General Manager's refusal to use the Eichleay formula in order to calculate the amount of recovery in cases in which a contractor has shown an unavoidable loss. In addressing these issues, we apply, as did the district court, the contractually prescribed standard of review, which allows a court to reverse determinations of the General Manager when they are arbitrary, capricious, unsupported by substantial evidence, or incorrect as a matter of law. 13 The General Manager's discussion of whether Hyman was entitled to recover any home office overhead costs can be quickly summarized. The discussion focuses not on whether Hyman offered proof of loss, but on whether the BCA considered proof of loss in recommending recovery. The General Manager's decision states that the BCA simply assume[d] that the delay entitled Hyman to recover home office overhead costs and that the BCA therefore failed to analyze whether Hyman had demonstrated actual loss. See Item 5 of R.E. at 2. The General Manager's only reference to the record evidence concerning damages appears in a parenthetical that takes up less than two lines. Nonetheless, the decision concludes that there [was] no showing of impact or damage and that Hyman accordingly had no right to recover. Id. at 3. 14 We agree with the district court that this determination cannot stand, although we reach this conclusion for somewhat different reasons. The district court found that the General Manager had misread the BCA's opinion. See Item 3 of R.E. at 7-11. According to the court, the BCA had not misconstrued the applicable law; the BCA, the court stated, had implicit[ly] found that Hyman could not feasibly have acquired replacement work and therefore must have suffered a loss. See id. at 9 n. 8. We incline toward accepting the district court's reading of the BCA's opinion, but we need not decide the matter. Even if we agreed with the General Manager that the BCA had misunderstood the law, we would find the General Manager's decision unacceptable. 15 As an initial matter, the General Manager's discussion fails to explain adequately her determination that Hyman was not entitled to recover. It is not enough for the General Manager to say that the BCA mistook the law; she must show that under a correct view of the law, either the BCA's factual findings or the facts contained in the larger record support her own result. Cf. Local 310, International Brotherhood of Teamsters v. NLRB, 587 F.2d 1176, 1181 (D.C.Cir.1978) ([W]hile the Board is free to draw different inferences from the facts found by the ALJ, its inferences 'should also rest upon some findings ... so that we may determine whether the Board's finding is supported by substantial evidence in the record as a whole.'  (citation omitted)); Greater Boston Television Corp. v. FCC, 444 F.2d 841, 853 (D.C.Cir.1970) ([T]he Commission [must] ma[ke] clear not only its awareness of what the [Hearing] Examiner had concluded, but also its reasons for taking a different course.), cert. denied, 403 U.S. 923, 91 S.Ct. 2233, 29 L.Ed.2d 701 (1971). The General Manager in this case failed to give the requisite explanation. In dwelling on the BCA's legal discussion, the General Manager virtually ignored the evidence contained in the BCA's decision or the larger record relating to the issue of unavoidable loss. A determination of this kind is arbitrary and capricious, and we cannot uphold it. 16 Moreover, the General Manager's determination that Hyman is not eligible to recover home office overhead costs is not supported by substantial evidence in the record. In fact, the record evidence cuts strongly in Hyman's favor: it shows that Hyman could not practicably have reduced home office overhead costs or have acquired replacement work to absorb them. The record contains undisputed evidence indicating that the delays caused by WMATA were sudden, sporadic, and of uncertain duration. See generally George Hyman Construction Co., 85-1 B.C.A. at 89,337-41 (Findings of Fact 8, 10-17) (summarizing record evidence). The record reveals, for example, that WMATA neither notified Hyman in advance of the unavailability of access on the contractually prescribed dates nor accurately indicated to Hyman at any time the dates on which access would become available. See Transcript of Proceedings before the BCA (Tr.) at IV, 30-31, 37-57. The record also shows that Hyman had to suspend its work on numerous occasions because of site conditions that WMATA had failed to discover before the onset of the project and that WMATA then took unpredictable amounts of time to correct. See Tr. at IV, 124-25 (large boulders); II, 6-54 (excess water); I, 107-10 (structural work deficiencies). Courts and boards of contract appeals have recognized that delays of this sudden and indefinite kind generally prevent a contractor from taking measures that will enable it to avoid a loss attributable to home office overhead. See, e.g., Capital Electric, 729 F.2d at 745-46 & 746 nn. 4-5; Eichleay Corp., 61-1 B.C.A. at 15,117. We, too, recognize this principle and hold, in accord with it, that the extant evidence supports Hyman's claim. We therefore agree with the district court that the record belies the General Manager's conclusion and affirm the court's determination that Hyman is entitled to recover home office overhead costs. 17 The General Manager's decision also disapproved of the use of the Eichleay formula to calculate the amount of recovery in cases in which a contractor has shown that it is entitled to an award. With no explanation, the General Manager espoused what she called a hybrid approach, which departs in significant respects from the Eichleay technique. See Item 5 of R.E. at 2-3. WMATA, on appeal, argues that the General Manager's approach is preferable to the Eichleay formula, because the latter often results in a windfall to contractors. In essence, WMATA contends not that the use of the Eichleay formula is improper in this case, but that use of the formula is generally inappropriate in computing contract awards. 18 We reject this contention. Except when parties have contracted specifically to use an alternate formula, courts and boards of contract appeals have applied the Eichleay formula to calculate the exact amount of recovery for home office overhead costs. The Federal Circuit, for example, has mandated the use of the Eichleay formula in all disputes arising out of contracts involving the federal government. See Capital Electric, 729 F.2d at 744-47. Other courts have adopted this approach in construing suspension of work clauses in contracts between a contractor and another governmental entity or a private party. See supra at 7. Especially in light of this large body of precedent, we think the Eichleay formula constitutes the appropriate background rule for determining the amount of money due to a contractor who has shown that a contractual delay caused him to suffer increased home office overhead costs. Given that the contract between WMATA and Hyman failed to set forth any substitute rule, we think the General Manager erred in refusing to use the Eichleay formula.