Enter the total contract bill, delay period, total contract days, overhead rate, and home office overhead into the calculator to determine the compensation due to delays using the Eichleay Formula. This calculator helps to estimate the amount to be claimed for extended overhead costs.
Eichleay Formula
The Eichleay Formula is used to calculate the compensation due to a contractor for home office overhead costs due to delays that are not the contractor’s fault. The formula is as follows:
text{C} = left( frac{text{Home Office Overhead}}{text{Total Contract Bill}} right) times left( frac{text{Overhead Rate}}{100} right) times left( frac{text{Delay Period}}{text{Total Contract Days}} right)
Variables:
- Compensation is the amount to be claimed for extended overhead costs ($).
- Home Office Overhead is the total overhead attributed to the contract ($).
- Total Contract Bill is the total amount of the contract ($).
- Overhead Rate is the percentage of the contract bill attributed to overhead costs (%).
- Delay Period is the number of days the project was delayed (days).
- Total Contract Days is the original duration of the contract (days).
To calculate the compensation using the Eichleay Formula, divide the home office overhead by the total contract bill, multiply by the overhead rate as a percentage, and then multiply by the ratio of the delay period to the total contract days.
What is the Eichleay Formula?
The Eichleay Formula is a method used in the construction industry to calculate the amount a contractor can claim for overhead costs incurred due to delays in the project that are not the fault of the contractor. It is named after the Eichleay Corporation, which first used this formula in a claim against the United States government. The formula provides a way to allocate a portion of the contractor’s home office overhead to the delayed project.
How to Calculate Compensation Using the Eichleay Formula?
The following steps outline how to calculate the compensation using the Eichleay Formula.
- Determine the total overhead attributed to the contract (Home Office Overhead).
- Determine the total amount of the contract (Total Contract Bill).
- Determine the percentage of the contract bill attributed to overhead costs (Overhead Rate).
- Determine the number of days the project was delayed (Delay Period).
- Determine the original duration of the contract (Total Contract Days).
- Use the Eichleay Formula to calculate the compensation.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Total Contract Bill = $1,000,000
Delay Period = 30 days
Total Contract Days = 365 days
Overhead Rate = 10%
Home Office Overhead = $100,000
