11/8/2016

Eichleayformulacalculations

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EichleayFormulaCalculations

19982006,ConstructionExperts,Inc.

Thispaperisintendedtobeafairlystraightforwardexplanationofhowto
performEichleayformulacalculations.Itisnotadefinitivetextoncalculationof
delaydamages.Therearenormallymanycomponentstoconsiderwhen
calculatingdelaydamagesandtheEichleayformuladealswithonlyoneofthese
components.

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TheEichealyFormulaiswidelyusedasamethodofcalculatinghomeoffice
overheaddamagesinconstructiondelaycases.Thiscomponentofdelay
damagesoftenaccountsforaverylargeportionoftheamountsclaimed.
Ifyouarecurrentlydealingwithacaseorclaiminvolvingconstructiondelays
youwillprobablyneedmoreinformationthanispresentedhere.Construction
delayclaimsareamongthemostcomplicatedclaimsandalmostalwaysrequire
theservicesofanexperttobothdeterminedamagesandtodefendagainstthem.
Informationpresentedinthisarticleiscategorizedintothefollowingspecific
sections.

Thebasicformula
Asamplecalculation
ProblemsassociatedwithusingandapplyingEichleay
TheBasicEichleayFormula
ThebasicEichleaycalculationnormallycomesattheendofaprojectwhenall
workhasbeencompleted.Inthatcase,thefollowing3stepcalculationisusedto
determinedamages.
1.AllocableOverhead.Thisisacalculationtodeterminetheportionofthehome
officeoverheadthatshouldbeallocatedtothisproject.Thisprojectisexpected
topayit'sfairshareofhomeofficeoverheadandthisisawayofcalculatingthat
amount.

2.Dailyallocableoverhead.Next,wewanttodetermineadailyrateforthe
allocationofhomeofficeoverhead.

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3.Homeofficeoverheaddamages.Thisissimplyamatterofmultiplyingthe
numberofcompensabledelaydaysbythedailyallocableoverheadrate.

http://www.constructionguy.com/litigation/eichleay.htm#basic

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11/8/2016

Eichleayformulacalculations

Asamplebasiccalculation
Let'sassumethatwehaveacontractamountof$2,700,00.Thecontractorhas
sufferedcompensabledelaysamountingto45calendardays.Duringthisperiod,
thecontractorhas5projectsunderwaywhoseaggregatevalueis$10,000,000.
Thecontractor'shomeofficeoverheadduringthisperiodtotaled$250,000.The
durationofthisproject,includingdelays,totals265days.Oursamplecalculation
ofhomeofficeoverheaddamagesfollows:
1.Thisproject'sallocableoverhead

2.Dailyallocableoverhead.

3.Homeofficeoverheaddamages.Thisissimplyamatterofmultiplyingthe
numberofcompensabledelaydaysbythedailyallocableoverheadrate.

Thus,inthiscase,ourcontractor'sclaimis$11,462incompensationforhome
officeoverheadthatshouldhavebeenallocatedtothisjobbecauseofthe
increaseddurationoftheproject.
ProblemsAssociatedwithapplyingtheEichleayFormula
1.TheEichleayformulaisconsideredanestimateoranapproximationand
it'saccuracycanbequestioned.Evenso,theEichleayformulaisgenerally
consideredtobeareasonablebasisforestimatingtheamountof
unabsorbedhomeofficeoverheadresultingfromconstructiondelays.
2.ItisreasonablewhenquestioningthevalidityofEichleaycalculationsto
demandthatthecalculationsbebaseduponauditedfinancialstatementsto
determineactualhomeofficeoverheadcosts.Manysmallcontractorsmay
nothaveauditedinformationavailableandevenlargercontractorsmaynot
haveauditedinformationavailableimmediatelyuponthecompletionofa
project.
3.Anobjectiontotheinclusionofcertaincomponentsinthevalueofhome
officeoverheadmayarise.Forexample,onpublicworksprojectswhich
areobtainedthroughhardbidding,thecostofadvertisingand
entertainmentmaybedisallowed.
4.SomestatecourtsmaynotrecognizeEichleayasanacceptablemethodfor
calculatingdelaydamages.
5.ItcanbedifficulttoacceptEichleaycalculationsifthedelayoccurslatein
theproject.Asanextremeexample,ifthedelayoccurswhentheprojectis
99%complete,itcanbearguedthatallallocablehomeofficeoverhead
expensehasalreadybeenpaidtothecontractor.

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Eichleayformulacalculations

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Lastupdated03/27/2006

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