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Eichleay Isn't The Only Overhead Formula In Town

Friday, July 07, 2017 06:24 am

 

After an owner-caused delay, contractors may use the Eichleay formula to calculate compensation for home office overhead expenses. But, at least in Ohio, that isn't the only formula available---and the prima facie elements required to use Eichleay don't necessarily apply to other calculation methods.

In Wood Electric, Inc. v. Ohio Facilities Construction Commission, 2017 Ohio App. Lexis (May 9, 2017), Wood Electric, Inc. (Wood) was the electrical contractor on a project to construct a new elementary school for the Dalton Local School District in Dalton, Ohio. The general contractor failed to meet the project's "enclosure" milestones---that is, dates on which "the permanent exterior walls and roofs are in place, insulated and weathertight" and temporary or permanent windows and doors installed. As a result, Wood submitted a certified claim for more than $200,000 for the impact of this delay on the efficiency and progress of its electrical work to the Ohio Facilities Construction Commission (OFCC), an entity that guides construction projects for state agencies.

After OFCC denied the claim twice, Wood sued in the Court of Claims of Ohio. That court found in Wood's favor---to the tune of $254,027. It ruled that OFCC breached its contract with Wood by failing to enforce the milestone deadlines against the general contractor. It also concluded that the home office overhead payment (HOOP) formula was an appropriate method for calculating home office overhead. This appeal followed.

OFCC originally disputed the entire premise of Wood's claim. It appeared to be swayed by testimony from the project's construction manager and designer, who alleged, using a broader definition of "enclosed," that areas of the building were temporarily enclosed before Wood claimed they were---and that nothing about the project suggested that Wood needed to constructively accelerate its work, as Wood contended.

Before the Court of Claims, Wood presented substantial evidence of its increased labor costs due to the enclosure-milestone delay---a delay exacerbated by "having to do the

same work in less time in environments exposed to poor weather and under 'stacked contractor' conditions." At that point, the OFCC no longer disputed the validity of the claim; it simply disputed the amount---specifically of the home office overhead calculation. That was the primary issue before the Court of Appeals.

Use of HOOP is reasonable

Wood's expert used the HOOP formula to calculate the amounts due for the delay. This formula (referenced in a Transportation Research Board of the National Academies' report titled "Compensation for Contractors' Home Office Overhead") works this way: First, it sets an overhead for the project---in this case, at 8 percent of the total[...]

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