Recovering Extended Home Office Overhead: What is the State of Eichleay

Fall 2004Articles The Procurement Lawyer

Contractors typically rely on project revenue to support their home office operations and accordingly include a markup in their bids for new work. Allocated over the project’s planned duration, this markup provides monthly revenue that is used to pay or “absorb” rent, administrative staff salaries, accounting and payroll services, general insurance, office supplies, telephone charges, depreciation, taxes, and utility costs. If the project time is extended without increasing the amount of the markup, the dollars available to absorb monthly overhead
are reduced.

Several recent decisions by the U.S. Court of Appeals for the Federal Circuit appear to make it more difficult for a contractor to recover unabsorbed home office overhead for delays to contract performance caused by the government based on the Eichleay formula. This article examines those cases, reflects on the evolution of the formula, and summarizes the current state of the law.

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