How a contractor pursued delay damages against the U.S. Navy using the Eichleay formula

Camp Lejeune, North Carolina

In a recent case involving work for the U.S. Navy — Appeal of Alderman Building Company, Inc. (ASBCA No. 58082, December 9, 2014) — a contractor was allowed to proceed with its claim for delay damages using the Eichleay formula.

The Eichleay formula is a widely accepted method used to quantify a contractor’s unabsorbed overhead costs due to owner delays. These are costs that are expended for the benefit of the whole business, and by their nature, cannot be attributed or charged to a particular contract. The Eichleay formula compensates contractors who are unable to take on replacement work because their standby status prevents them from doing so. The contractor is entitled to damages only if its inability to take on additional work results from its standby status.

In Appeal of Alderman Building, the Navy awarded a task order to Alderman, dated March 27, 2009, for renovation work on a building at Camp Lejeune, North Carolina. The task order provided that “[t]he entire work…shall be completed by 3/22/2010.” The contract contained various standard clauses, including Federal Acquisition Regulation (FAR) 52.233-1 – Disputes; FAR 52.242-14 – Suspension of Work; and FAR 52.243-4 – Changes.

Alderman entered a subcontract with Big John’s Electric Co., Inc., dated April 8, 2009, for interior repairs to the building. The subcontract provided that “time is of the essence,” and work was to begin “within 7 days after notification.” However, there were repeated government-caused delays in starting work because new facilities for the existing tenants were not available.

By letter dated July 7, 2009 to Alderman, the Navy’s Contracting Officer (CO) advised that pursuant to the Suspension of Work clause, “you are hereby directed to suspend all work under the referenced contract . . . until further notice.” The CO’s cited reason was “Government delays in vacating the premises.”

On February 19, 2010, Alderman and Big John’s began contract performance. Big John’s completed work on October 28, 2010. On August 18, 2011, Alderman submitted a claim to the CO on behalf of Big John’s for government delay in starting work.

The CO denied the claim. Alderman appealed to the Armed Services Board of Contract Appeals (Board), alleging entitlement to delay damages for home office overhead pursuant to the Eichleay formula. Both parties moved for summary judgment.

Alderman alleged the Navy “delayed the start of Big John’s work, by delaying the Notice to Proceed and by successively revising the date the job site would be available and work could start.” Alderman claimed the delays were unreasonable, as they were for the Navy’s convenience. As a result, Alderman claimed entitlement to extended and unabsorbed home office overhead costs on behalf of Big John’s. In support, Big John’s project manager attested “the project was delayed eight times from the original date of June 1, 2009 to February 19, 2010,” that “Big John’s kept two workers on standby as floated or nonproductive labor during the period from June 3, 2009 to February 17, 2010,” and these workers “would be a full crew and would be able to commence work . . . immediately.” In response, the Navy argued that Alderman was not entitled to recover unabsorbed overhead because Alderman did not meet the requirements to recover under the Eichleay formula.

The Board reviewed the three elements necessary to recover Eichleay damages: (1) a government caused delay; (2) the government required the contractor to “standby” during the delay; and (3) while standing by, the contractor was unable to take on replacement work.

Regarding the first element, Alderman and the Navy argued about the extent of delays by the government, including whether or not they were indefinite. The Board found there were delays of uncertain duration by the Navy. The CO’s letter dated July 7, 2009 ordered a suspension “until further notice.” Regarding other delays, the Navy provided “ballpark” resumption of work dates. Further delays were documented by the Navy with projected dates to resume work, which were later missed. As a result the Board found multiple delays by the Navy of uncertain duration.

With respect to the second element, the Navy argued Alderman could not demonstrate it was on standby because there was no proof that during the delay, Alderman “was required to be ready to resume work…at full speed as well as immediately.” Although the Board found employees were on standby during the delay period, it was unclear whether the Navy required them to be ready to resume work. As a result, the Board left this issue for later determination.

Regarding the third element, Alderman argued the Navy “did not revise each of its successive start-dates until days before work was to start each time, and then moved the revised start-date to only a few short days or weeks later,” which interfered with replacement work. Alderman also argued the replacement work that Big John’s acquired was inadequate to replace the work lost due to government delays. The Board found there were eight suspensions of work. The Board further found that whether the Navy revised the start-dates too soon to allow for replacement work was an issue that required additional evidence. As a result, the Navy’s motion for summary judgment was denied, and Alderman’s case was allowed to proceed.

The Alderman matter underscores the difficulties in bringing a claim for government caused delay damages. The Eichleay formula requires a contractor to prove a delay by the government, the contractor was required to standby during the delay, and was unable to take-on replacement work. In addition, the contractor’s claimed costs are also subject to scrutiny. To prevail on a claim for delay by the government, contractors should understand the legal requirements regarding the Eichleay formula, including the necessity of providing detailed and thorough documentation to meet those requirements.

Editor’s Note: Attorney Brian Morrow is a partner in Newmeyer & Dillion LLP and a licensed civil engineer specializing in construction law, incl. road and heavy construction.