What Is the ”Eichleay Formula” ?

What Is the ''Eichleay Formula'' ?

What is the Eichleay Formula and how is it used ?

The Eichleay formula is used to determine a government contractor's damages reflecting unabsorbed home office overhead when the government delays work on the contract indefinitely but requires the contractor to remain available to resume work immediately on the government's instruction.

Eichleay damages are calculated by multiplying the daily amount of the contractor's unabsorbed home office overhead allocated to the particular contract by the number of days for which work was suspended.

In Eichleay Corp., A.S.B.C.A. No. 5183, 60-2 B.C.A. (CCH) p 2688, 1960 WL 538 (July 29, 1960), aff'd on recons., 61-1 B.C.A. p 2894, 1960 WL 684 (Dec. 27, 1960), the Board approved, as "a realistic method of allocation of continuing home office expenses" "incurred during a period of suspension of work" when it was not practical for the contractor to undertake the performance of other work which might absorb them, the following computation, which has become known as the Eichleay formula.

It involves: an allocation of the total recorded main office expense to the contract in the ratio of contract billings to total billings for the period of performance. The resulting determination of a contract allocation is divided into a daily rate, which is multiplied by the number of days of delay to arrive at the amount of the claim. Eichleay, 60-2 B.C.A. at 13,574.

The Court implicitly approved the Eichleay formula, apparently for the first time, in Capital Electric Co. v. United States, 729 F.2d 743 (Fed.Cir.1984), in which the General Services Board of Contract Appeals had rejected the formula.

Since then the Court has considered the Eichleay formula in a number of cases in which it has explained and developed the conditions for applying the formula. See, e.g., Interstate Gen. Gov't Contractors v. West, 12 F.3d 1053 (Fed.Cir.1993); Wickham Contracting Co. v. Fischer, 12 F.3d 1574 (Fed.Cir.1994).

The three elements necessary to recover Eichleay damages are:

(1) a government-imposed delay occurred;

(2) the government required the contractor to "stand by" during the delay;

(3) while "standing by," the contractor was unable to take on additional work. Interstate, 12 F.3d at 1056.

The court also has explained the rationale for the Eichleay formula. "Home office overhead costs are those costs that are expended for the benefit of the whole business, which by their nature cannot be attributed or charged to any particular contract." Altmayer v. Johnson, 79 F.3d 1129, 1132 (Fed.Cir.1996).