Indirect Costs of Standby or Delay Caused to Contractors

Discussion on calculating indirect costs associated with standby or delay caused to a contractor.
Responsibility of costs falls on the owner.

Direct Costs: Costs allocated directly to the construction project, including: - Superintendent Costs: On-site supervision. - Equipment Costs: Expenses for machinery used at the site. - Material Costs: Expenses for materials being installed. - Trailer Costs: Expenses for project site offices or trailers.
Indirect Costs: General costs of doing business that are not directly tied to the construction project but are essential, including: - Home Office Costs: Costs associated with managing the project, including: - Receptionist salaries. - Accountant salaries. - Legal team salaries or legal costs. - Office supplies (e.g., paper, pencils, Xerox machines).

Indirect costs can be complicated to quantify.
The ECLI (Ecclesiastical Construction Offer) formula was established by a federal case for calculating these costs, often referenced as overhead costs.

Calculate Project Percentage of Total Revenue: - Formula: $ext{Project Percentage} = rac{ ext{Total Contract Sum}}{ ext{Total Billings}}$ - Example: For a project worth $1,000,000 and total billings of $80,000,000: - $ext{Project Percentage} = rac{1,000,000}{80,000,000} = 0.0125$ or 1.25%.
Calculate Job-Related Overhead: - Formula: $ext{Job Overhead} = ext{Total Overhead} imes ext{Project Percentage}$ - Example: If total overhead is $3,000,000: - $ext{Job Overhead} = 3,000,000 imes 0.0125 = 37,500$ .
Calculate Daily Overhead: - Formula: $ext{Daily Overhead} = rac{ ext{Job Overhead}}{ ext{Contract Time}}$ - Example: If the planned work duration is 100 days: - $ext{Daily Overhead} = rac{37,500}{100} = 375$ per day.
Calculate Unabsorbed Overhead Due to Delay: - Formula: $ext{Unabsorbed Overhead} = ext{Daily Overhead} imes ext{Number of Days Delayed}$ - Example: If the contractor is delayed for 14 days: - $ext{Unabsorbed Overhead} = 375 imes 14 = 5,250$ .

To qualify for claiming unabsorbed overhead: - There must be a suspension of work that results in an increase in total contract time.
If a contractor has float in their schedule and can absorb the delay, they cannot claim these costs, as these costs are already accounted for in the original contract planning.

Given project: - Project value: $1,000,000 - Total revenue during the period: $80,000,000 - Total overhead for the period: $3,000,000 - Planned duration: 100 days - Delay: 14 days
Calculation yields: - Total damages for delay: $5,250 based on the unabsorbed overhead during suspension.

Eichele Case: A federal case that set the precedent for overhead calculation methods.
Post-Eichele, the U.S. government established regulations for federal projects applying the ECLI forms.
Ohio Case: Follows the Eicle damages formula in state courts but recognizes that some overhead costs may not directly benefit the project: - Examples: - Costs for parties thrown to entertain stakeholders. - Donations to charities unrelated to the project. - Such costs are excluded from the total overhead calculation, reducing the overhead applicable to the project.

Applicability: ECLI damages are specifically designed for situations where all work stops (suspensions).
In practice, even during ongoing work, contractors may use likely damages to estimate actual costs incurred due to project delays.
Caution against double counting overhead: - During claims using actual costs, do not use ECLI Formula if also applying the total cost method, as costs are included in both methodologies leading to double-counting.

Always evaluate overhead claims critically, especially when they involve detailed support from the contractors regarding specific overhead allocation.