The Eichleay formula in Naval Facilities Engineering Command (NAVFACENGCOM) contracting.
Abstract
When a delay causes contractors to be shut down or turn idle for a period of
time, fixed overhead as well as general and administrative expenses continue to be
incurred. However, the amount of direct costs to which these expenses can be allocated
or expensed is reduced. The result is an amount of overhead that is unabsorbed, which
can be allocated to that specific delay. Various pricing methods for calculating these
unabsorbed home office overhead expenses currently exist in the construction litigation
process today. The per diem Eichleay method is the most frequently utilized method.
In this era of financial austerity, the armed forces are facing challenges to maintain
operational readiness with fewer personnel and leaner operating capital due to shrinking
defense budgets. One way to optimize these precious and limited resources is the efficient
and effective use of construction funds and personnel in Naval Facilities Engineering
Command (NAVFACENGCOM) construction administration. This report focuses on the commonly utilized Eichleay method of computation, as
well as alternative methods currently utilized in today's construction industry. Research
and analysis was conducted on current litigated construction claims resulting from
disputes involving the Eichleay formula. Assumptions about the Eichleay formula method
and its shortcomings have been provided. Emphasis on utilizing other methods of
calculating these damages to the contractor as well as situation specific modifications of
the Eichleay formula itself are also included. Conclusions were drawn from the data that
identify significant strengths and weaknesses among these common place case situations.
Recommendations were made for future possible improvements regarding the recognition
and avoidance of potential claims by contractors.
The target audience of this report is the junior construction project manager
(Naval Civil Engineer Corps officer/civilian government personnel) and is to be utilized as
a guide in the NAVFACENGCOM construction organization atmosphere for calculating
legitimate contractor's unabsorbed home office overhead expense for a government caused
suspension, delay, or disruption to the contract performance.
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.Collections
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