The Armed Services Board of Contract Appeals recently reiterated the requirements a contractor must meet in order to recover unabsorbed home office overhead using the Eichleay Formula. In Kato Corporation, ASBCA No. 51462, the Board held that a contractor must establish three elements to successfully maintain a claim for recovery of its home office costs as a result of a delay:
1) There must be a government-caused delay of an indefinite duration that delays completion of the entire project and there must be no concurrent contractor caused delay;
2) The original contract performance time must be extended by the delay, or the contractor must prove that it was going to finish early and was prevented from doing so by a government-caused delay; and
3) The contractor must show that it was required to remain on standby, ready to resume work, once the delay had ceased.
In Kato, the contractor failed to prove that the government delayed the completion of the work. Although the contractor presented evidence that the government issued three change orders that delayed completion of specific portions of the work, it did not prove a causal link between those changes and a delay to the critical path, thus failing to demonstrate that the overall project had been delayed. The ASBCA further found that the work had not been suspended for an indefinite period of time because Kato had continuously performed some work at the site during the claimed delay period. Since Kato had been performing work, the Board also concluded that it could not prove that it was on “standby” during the purported delay.
This decision points out the critical importance of proving that a government-caused delay occurred that it actually delayed completion of the overall project.