Federal Circuit Court of Appeals Holds Public Contractor Entitled to Eichleay Overhead Damages for Government-induced Delay of Public Contract Notwithstanding That Its Forces Were Not Totally Idle During Delay

J.P. Altmayer v. R.W. Johnson,
79 F.3d 1129 (Fed. Cir. 1996).

GSA had planned to order the carpet and trim for the office by August 1992 but did not do so despite repeated requests from Altmayer who tried to impress the importance of this for the contract to be completed on time. Throughout January and February 1993, the government changed its mind regarding the type of carpet and wood trim several times. This indecision caused Altmayer to request an extension of the contract and a price adjustment in anticipation that the contract would not be completed on time. On January 7 and February 9, Altmayer requested an extension of the contract but did not receive a response from the contracting officer on either occasion. On March 1, 1993, the government granted an extension but denied monetary liability for the delay contending that Altmayer was concurrently responsible for a number of reasons.

The board held that the government was responsible for 10% associated direct costs to compensate for home office costs during the delay. However, the board denied recovery of extended home office overhead as calculated under the Eichleay formula. Altmayer as the prime contractor appealed.

Home office overhead costs are those that are expended for the benefit of the whole business, which by their nature cannot be attributed or charged to any particular contract. In contracting with the government, a company necessarily includes a portion of home office overhead expenses, which it calculates based on the contract’s duration, in its estimate of costs to perform the contract. When the government delays or disrupts, the contractor’s stream of income is reduced or interrupted. However, home office overheads continue to accrue throughout the rest of the extended contract performance.

The Eichleay formula approximates extended home office overhead costs by calculating a daily overhead dollar amount for the contract in question and multiplying that figure by the number of days of delay.

Entitlement to Eichleay damages turns on whether the contractor can establish: (1) a government-caused delay; (2) that it was on “standby; and (3) that it was unable to take on other work.

In this case it is undisputed that the government was the sole cause of the delay in contract performance here. But the trial court held that neither Altmayer nor Haas was ever placed “in a standby position, such that work was not being performed on the contract.” Rather, the board concluded that Haas performed “additional work,” creating a stream of income against which to charge its extended home office costs.

“The proper stand-by test focuses on the delay… of contract performance for an uncertain duration, during which a contractor is required to remain ready to perform.” The linchpin to entitlement under Eichleay is the uncertainty of contract duration occasioned by government delay or disruption.

Between October 1992 and March 1993, the government so disrupted and delayed performance that the contractor and subcontractor was never able to perform the contract as planned. Therefore, the Court of Appeals states that recovery under Eichleay was not compromised because the subcontractor continued to perform minor tasks throughout the period of government indecision. The standby test does not require that the contractor’s work force be idle. Notwithstanding the contractor and subcontractor’s continuous work on minor contract items, the fact remains that the overall project income was spread over an additional three-month period; hence, less of that income was allocable to home office overhead costs. The contractor and subcontractor presented a prima-facie case of entitlement to Eichleay formula damages.

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