Enter the contract billings, total company billings for the same period, total home office overhead incurred during the contract period, total contract performance days, and compensable delay days into the calculator to estimate unabsorbed home office overhead using the Eichleay method. This calculator helps to estimate the amount that may be claimed for home office overhead due to qualifying delays (eligibility depends on the facts and applicable contract law).
Eichleay Formula
The Eichleay method is used to estimate unabsorbed home office overhead a contractor may claim when a project is delayed for reasons not caused by the contractor (and when the legal prerequisites for an Eichleay claim are met). A common combined form of the calculation is:
\text{C} \;=\; \left( \frac{\text{Contract Billings}}{\text{Total Company Billings}} \right)\times \left(\text{Total Home Office Overhead}\right)\times \left( \frac{\text{Compensable Delay Days}}{\text{Total Contract Performance Days}} \right)
Variables:
- Compensation (C) is the estimated unabsorbed home office overhead (Eichleay damages) ($).
- Contract Billings are the billings/revenue for the delayed contract during the contract performance period ($).
- Total Company Billings are the contractor’s total billings/revenue for all work during the same contract performance period ($).
- Total Home Office Overhead is the contractor’s total home office overhead incurred during the same contract performance period ($).
- Compensable Delay Days are the delay days claimed (often associated with standby, depending on the jurisdiction/contract) (days).
- Total Contract Performance Days are the total days from the contract’s start to finish for the period used in the overhead calculation (often including the delay period) (days).
One way to compute Eichleay damages is: (1) allocate total home office overhead to the contract using the ratio of contract billings to total company billings, (2) convert the allocated overhead to a daily rate by dividing by total contract performance days, and (3) multiply the daily rate by the compensable delay days.
What is the Eichleay Formula?
The Eichleay Formula is a method used in the construction industry (and other contracting contexts) to calculate the amount a contractor can claim for unabsorbed home office overhead incurred due to qualifying project delays 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 method provides a way to allocate a portion of the contractor’s total home office overhead to the delayed project based on billings.
How to Calculate Compensation Using the Eichleay Formula?
The following steps outline how to calculate the compensation using the Eichleay method.
- Determine the contract billings during the contract performance period.
- Determine the total company billings during the same contract performance period.
- Determine the contractor’s total home office overhead incurred during the same contract performance period.
- Compute the overhead allocable to the contract: (Contract Billings / Total Company Billings) × Total Home Office Overhead.
- Determine the total contract performance days for the period used in the calculation (often including the delay period).
- Compute the daily allocable overhead rate: Allocable Overhead / Total Contract Performance Days.
- Determine the compensable delay days to be claimed (commonly associated with standby, depending on jurisdiction/contract).
- Compute the Eichleay damages: Daily Allocable Overhead × Compensable Delay Days.
- 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.
Contract Billings (same period) = $1,000,000
Total Company Billings (same period) = $10,000,000
Total Home Office Overhead (same period) = $2,000,000
Total Contract Performance Days = 395 days
Compensable Delay Days = 30 days
Using the combined form above, Eichleay damages ≈ $15,189.87.
