Court Opinion

ID: 9471910
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:44:02.494562+00
Date Added: 2024-06-11T17:42:38.464590
License: Public Domain

FRIEDMAN, Circuit Judge,
concurring:
Although I agree with the court that the appellant is entitled to recover, the analysis through which I reach that conclusion differs somewhat from that of the court.
For almost 40 years the Court of Claims consistently has held that the delay damages a government contractor may recover include extended home office overhead incurred during the period of delay. The leading case is Fred R. Comb Co. v. United States, 103 Ct.Cl. 174 (1945), which the court subsequently followed and approved a number of times. E.g., Luria Brothers & Co. v. United States, 177 Ct.Cl. 676, 369 F.2d 701, 709-10 (1966); J.D. Hedin Construction Co. v. United States, 347 F.2d 235, 259 (Ct.Cl.1965). Similarly, the various boards of contract appeals repeatedly allowed the recovery of this element of delay damages.
The government now asks us to jettison this settled line of authority on the ground that all of those cases were wrongly decided. It argues that since the delay in performance ordinarily does not increase the total amount of office overhead the contractor incurs in connection with the particular contract, but merely spreads it over a longer period, allowing the contractor to recover for such overhead for the period of delay would result in compensating the contractor for losses it did not actually incur. According to the government, the only situations in which a contractor may recover for such extended office overhead is where the delay in performance: (1) requires the contractor to hire additional personnel or incur other additional expenses; or (2) prevents the contractor from taking *748on other work it would have been able to assume had there not been the delay.
Although superficially plausible, the government’s argument does not withstand more penetrating analysis based upon the theory on which extended office overhead is allowed as an element of delay damages. By definition this type of overhead cannot be directly attributed to the performance of a particular contract, yet it is an essential part of the contractor’s total cost of doing business. Some basis, therefore, must be found for allocating this total overhead among the various contracts in connection with which it is incurred.
A contractor’s estimate of its costs necessarily includes its overhead costs, which it calculates on the basis of the time required to perform the contract. Where performance of a contract has been delayed, the overhead expenses of performing that contract continue for the additional time. A portion of the total overhead for that additional period accordingly is allocable as a cost of performing that contract.
As the Court of Claims explained in Combs,
It would not be expected that a contractor would enlarge his main office staff and facilities at a time when one of his jobs was merely marking time. But unless his office was understaffed before the suspension, it too would, pro tanto, mark time during the suspension, unless the useful work which it would have been doing in regard to this job, if the job had not been suspended, had been replaced by extra work made necessary by the suspension. So the fact that no extra help was hired seems both natural and immaterial. If some employees had been laid off, that would have been material, since it would have enabled the contractor to pay the full staff which he would need during the extra time that the work was in process, because of the delay, with the money he had saved by laying off employees during the period of suspension.
But it is, ordinarily, not practicable to lay off main office employees during a short and indefinite period of delay such as occurred here. So the contractor, instead of saving the salary of that proportion of his main office staff which is attributable to this contract, is obliged, in effect, to waste it, and to spend a similar amount at the end of the contract for the extra time made necessary by the delay. This waste is caused by the breach of contract, and it ought to be paid for by the party guilty of the breach.
103 Ct.Cl. at 183-84.
In other words, a portion of the overhead incurred during the entire period of performance must be charged against the revenue received during that period as a cost of performing the contract. The Court of Claims decisions, as well as the Eichleay formula used to calculate the amount of such extended office overhead, are based upon and reflect these economic realities of the construction business. I think those decisions are correct, and I see no reason for the panel (which is bound by those decisions) to invite the full court to reconsider them en banc.