Many years ago, I argued that a contractor could not receive Eichleay damages for extended overhead when work on the project was never shut down. Recent cases seem to verify this argument.
Contractor left holding the tab
In P.J. Dick, Inc. v. Principi, 324 F.3d 1364, 2003 U.S. App. LEXIS 6554 (Fed. Cir.), despite a 53% decrease in a contractor's billings during a government-caused delay period, because the contractor was able to work on some other parts of the project and continue making direct (albeit substantially decreased) billings, the court found the contractor was not on standby for purposes of collecting Eichleay damages.
In that case, the government issued more than 400 change orders and caused several delays, increasing the project's price by more than 5% and causing the government to grant an additional 107 days of performance time.
The contractor finally completed the project 260 days after the original contract completion date and 153 after the government-revised completion date. It then presented its claim for Eichleay damages. The government contracting officer denied the contractor's claims, and the contractor appealed.
The board of contract appeals concluded that the contractor was not entitled to Eichleay damages, because it failed to show the government's changes and delays caused it to be on standby.
The board found that while work on certain parts of the project was suspended, work on other parts of the project was not. It found no evidence that the contractor's direct billings were less than they would have been absent the government's delays.
The contractor disagreed and argued that any time the government causes an indefinite delay, the contractor is automatically placed on standby because after the government's delay the contractor is required to immediately resume its work. The contractor disputed the board's determination that the 53% decrease in its direct billings "showed no appreciable diminution during the alleged suspension periods."
The federal court affirmed the board's findings that the contractor's direct billings indicated the contractor continued to perform substantial work on the project during the delays, thereby showing there was no standby for purposes of collecting Eichleay damages. The court found that, in this particular case, a prior stipulation between the parties still entitled the contractor to collect home office overhead expenses.
A contractor's home office overhead is only compensable to the extent that the contractor's costs are unabsorbed and caused by the government's delay. To recover Eichleay damages, a contractor must show that: (1) it was placed on standby, and (2) it was unable to take on replacement work during the suspension or standby period. A contractor is placed on standby when the government suspends work on a project for an uncertain or indefinite duration, during which the contractor is required to remain ready to perform. The government's delay cannot be concurrent with a contractor-caused delay and must have extended the original time for performance of the contract or accelerated the contractor's performance, thereby causing the contractor to incur additional costs.
Fear of success
This decision seems unfair in that it punishes a contractor who mitigates the owner's damages and keeps the project moving forward during a delay. It creates a situation in which almost any intra-delay billings (even severely decreased ones) will bar its recovery of Eichleay damages.
Contractors should carefully document their actual losses, such as the cost of diverting equipment and work force to non-suspended parts of the project and the additional field and office overhead they incurred due to the government's delay.
Contractors should also prepare evidence needed to recover home office overhead. Specifically, to recover Eichleay damages a contractor will have to show that its direct billings are less than they would have been absent the government's delay and that the government delayed much, if not all, of the work--even if it's already clear that the actual intra-delay billings are less than half of what they were before the delay.
A contractor must mitigate its delay damages. But one who does this too well may be left empty handed.
