 | When construction is delayed by owner-caused actions, contractors request compensation for the delay. It is difficult to reach agreement on the causes and extent of delay and even tougher to agree on the cost of delay, especially the component costs of home office overhead. This is due, in part, to the lack of a single, accepted method of calculating home office overhead. Here is one acceptable method of calculating Head Office Overhead recovery. |
HOOH is generally described as company costs incurred by the contractor for the benefit of all projects in progress. This is the actual cost, which is an essential part of the cost of doing business.1 These are costs that cannot be directly allocated to a project. This definition excludes those costs incurred by the contractor solely in support of a single project or group of projects.
The landmark case in the area of Head office Overhead recovery (HOOH) is the Eichleay Corporation case decided in 1960. Where there were multiple work stoppages for which the client was responsible. It was concluded that HOOH costs continued during the suspension periods; that the Eichleay Corporation was unable to take on new work during these periods to replace lost project revenue and thus, had to absorb the unrecoverable HOOH costs.
The formula for compensation requires three steps:
1) find assigned contract overhead, multiply the total overhead cost incurred during the contract period times the ratio of billings from the delayed contract to total billings of the firm during the contract period;
2) to get the daily contract overhead rate, divide assigned contract overhead by days of contract performance;and
3) to get the amount recoverable, multiply the daily contract overhead rate times days of government-caused delay.
FORMULA
Contract Billings
Total Billings during period of performance x Total Overhead (General and Administrative Expense) during period of contract performance = Overhead allocated to Contract
Allocated Overhead
Days of Performance = Daily Contract Overhead
Daily Contract Overhead x days of delay = Claim Amount
Example
Contract Notice to Proceed - November 1, 1986
Contract Completion Date - November 1, 1987
Performance Time - 365 days
Actual Completion Date - December 1, 1987
Days of Delay - 30 days
Contract Billings (Amount plus change orders) - $1,000,000
Contract Billings for Company 11/1/1986 to 12/1/87 - $2,000,000
Overhead (General and Administrative Expenses) 11/1/1986 to 12/1/1987 - $400,000
Calculation
$1,000,000 x $400,000 = $200,000
$2,000,000
$2,000,000/395 days = $506.33/day
$506.33 x 30 days = $15,189.90
A detailed template is available at the link below.
http://www.Online-Templatestore.com our partner site has over 400 document templates available for download, including the Eichleay formula and various other claim assisting documents.
The landmark case in the area of Head office Overhead recovery (HOOH) is the Eichleay Corporation case decided in 1960. Where there were multiple work stoppages for which the client was responsible. It was concluded that HOOH costs continued during the suspension periods; that the Eichleay Corporation was unable to take on new work during these periods to replace lost project revenue and thus, had to absorb the unrecoverable HOOH costs.
The formula for compensation requires three steps:
1) find assigned contract overhead, multiply the total overhead cost incurred during the contract period times the ratio of billings from the delayed contract to total billings of the firm during the contract period;
2) to get the daily contract overhead rate, divide assigned contract overhead by days of contract performance;and
3) to get the amount recoverable, multiply the daily contract overhead rate times days of government-caused delay.
FORMULA
Contract Billings
Total Billings during period of performance x Total Overhead (General and Administrative Expense) during period of contract performance = Overhead allocated to Contract
Allocated Overhead
Days of Performance = Daily Contract Overhead
Daily Contract Overhead x days of delay = Claim Amount
Example
Contract Notice to Proceed - November 1, 1986
Contract Completion Date - November 1, 1987
Performance Time - 365 days
Actual Completion Date - December 1, 1987
Days of Delay - 30 days
Contract Billings (Amount plus change orders) - $1,000,000
Contract Billings for Company 11/1/1986 to 12/1/87 - $2,000,000
Overhead (General and Administrative Expenses) 11/1/1986 to 12/1/1987 - $400,000
Calculation
$1,000,000 x $400,000 = $200,000
$2,000,000
$2,000,000/395 days = $506.33/day
$506.33 x 30 days = $15,189.90
A detailed template is available at the link below.
http://www.Online-Templatestore.com our partner site has over 400 document templates available for download, including the Eichleay formula and various other claim assisting documents.
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