Eichleay Formula Calculator
Construction projects often face unforeseen delays. When these delays are caused by the client—such as government bodies or private owners—contractors may be entitled to compensation. One of the most accepted methods for calculating extended overhead costs is the Eichleay Formula, named after the Eichleay Corporation involved in a landmark court case.
The Eichleay Formula Calculator helps contractors compute recoverable overhead during work suspensions or delays, ensuring fair compensation. In this article, you’ll learn what the formula is, when to use it, how to calculate Eichleay damages, and see a working example, as well as 20 FAQs addressing common concerns.
Eichleay Formula (Explained in Plain Text)
The Eichleay Formula involves three steps:
- Step 1 – Determine Allocable Overhead: Allocable Overhead = (Contract Billings ÷ Total Billings) × Total Firm Overhead
- Step 2 – Calculate Daily Overhead Rate: Daily Rate = Allocable Overhead ÷ Number of Days in Contract Billing Period
- Step 3 – Total Compensation: Overhead Claim = Daily Rate × Days of Suspension
This helps quantify the daily fixed overhead cost attributable to the delayed project.
How to Use the Eichleay Formula Calculator
- Enter Total Overhead – Your firm’s total overhead expenses during the relevant project time period.
- Enter Total Billings – Your company’s total billings (all contracts) during that same period.
- Enter Contract Billings – Amount billed to the affected contract up to the point of suspension.
- Enter Days of Suspension – The number of calendar days work was suspended or delayed.
- Click “Calculate” – The calculator will display both the Daily Eichleay Rate and Total Claim.
Example
Let’s say a contractor experienced a 30-day suspension. During the original contract billing period:
- Total Overhead = $500,000
- Total Billings = $2,500,000
- Contract Billings = $1,000,000
Step 1:
Allocable Overhead = (1,000,000 ÷ 2,500,000) × 500,000 = 0.4 × 500,000 = $200,000
Step 2:
Daily Rate = $200,000 ÷ 30 = $6,666.67
Step 3:
Total Claim = $6,666.67 × 30 = $200,000
The contractor may claim $200,000 in overhead damages using the Eichleay method.
Frequently Asked Questions (FAQs)
1. What is the Eichleay Formula?
It is a legal and accounting formula used to calculate unabsorbed home office overhead during project delays caused by the client.
2. When is the Eichleay Formula used?
It’s applied when work is suspended, delayed, or extended without fault from the contractor and a claim for overhead recovery is filed.
3. Is the Eichleay Formula accepted in court?
Yes, especially in U.S. government contracts. It’s widely accepted in litigation and arbitration.
4. What are contract billings?
The total amount billed to the delayed project up to the suspension period.
5. What are total billings?
The total revenue your company generated from all contracts during the same time frame.
6. What is firm overhead?
Overhead includes indirect business costs such as rent, executive salaries, and administrative expenses.
7. Why divide by 30 in the formula?
It assumes a standard monthly accounting period. This can be adjusted if needed.
8. Can I use 365 days instead of 30?
Only if calculating over a full year. The divisor should match the billing period’s duration.
9. Is this calculator legally binding?
No. It’s a guidance tool. Actual claims should be backed by certified accountants or legal counsel.
10. Can this be used for partial suspensions?
Yes, if suspension days and affected billing are well documented.
11. Is Eichleay Formula used internationally?
Primarily in the U.S., but its logic is referenced in global delay claim evaluations.
12. Can a subcontractor use this formula?
Yes, but it depends on the terms in the subcontract and the prime contract.
13. What if total billings are zero?
The formula cannot be applied; division by zero is invalid.
14. What is an alternative to the Eichleay Formula?
Other methods include actual cost recovery or Hudson Formula (used more in the UK).
15. Does this cover direct costs too?
No. It only calculates unabsorbed indirect overhead, not direct delay-related costs.
16. Is approval automatic after calculation?
No. Supporting documentation and client or court approval are still required.
17. Can I edit the code for my construction website?
Yes, the HTML + JS code is fully editable for your business or legal use.
18. What format should overhead costs be in?
Use total dollar values. Ensure consistent time frames across all input data.
19. Does this work for projects under $100,000?
Yes, but legal validation for overhead claims is stricter for smaller projects.
20. What if I have multiple overlapping projects?
You may need to prorate overhead across contracts or consult a forensic accountant.
Conclusion
The Eichleay Formula Calculator offers contractors and project managers a reliable method to estimate claims for extended overhead due to owner-caused delays. By breaking down firm-wide overhead across total billings, the formula fairly allocates lost opportunity costs during suspension.
Whether you’re working on a large infrastructure contract or a commercial build, understanding an