ConstructionPro Week, Volume: Construction Advisor Today - Issue: 104 - 04/22/2011

Recovery of Home Office Overhead Keeps Getting Tougher

<p> <div class="entry-body"> <p>Bruce Jervis, Editor<br /> <a target="_blank" href="">Construction Claims Advisor</a></p> <p>&nbsp;</p> <p>Contractor recovery of unabsorbed home office overhead has long been controversial. Project owners consider these damages phantom costs designed to inflate claims. Contractors counter that they reasonably anticipate a fixed-price contract to absorb a certain percentage of home office expenses over a scheduled period of contract performance. When work on the contract is suspended, those expenses must be absorbed by other contracts.</p> <p>&nbsp;</p> </div> <div class="entry-more"> <p>The project owners seem to be winning the argument. The courts &ndash; particularly the federal courts &ndash; have imposed multiple restrictions on recovery of unabsorbed home office overhead. The suspension of work must be of an uncertain duration. The suspension must extend the overall time of contract performance. The suspension must force the contractor to maintain a &ldquo;standby&rdquo; position, ready to resume work on short notice. And the contractor must be unable to replace the suspended work with other work which could absorb home office overhead.</p> <p>&nbsp;</p> <p>An example of these restrictions was seen recently in the U.S. Court of Federal Claims. A government agency issued a notice-to-proceed and then suspended work under the contract before the contractor even mobilized at the site. Four years later the government directed the contractor to commence work. The contractor was denied unabsorbed home office overhead because its forces had never been required to stand by at the job site. Prompt mobilization in response to the directive to commence work did not establish a standby position.</p> <p>&nbsp;</p> <p>How do you feel regarding the restrictions on recovery of unabsorbed home office overhead? Are these restrictions unfair to contractors, making it virtually impossible to recover what can be a very real and legitimate element of damages? Or are these restrictions long overdue, needed to curb the abuses of unabsorbed overhead claims? I welcome your comments.</p> <p>&nbsp;</p> <p>Featured in Next Week&rsquo;s <a target="_blank" href="">Construction Claims Advisor</a>:</p> <ul> <li>Alleged Bid Collusion Subject to State Antitrust Act</li> <li>Joint Venture LLC Needed Separate Contractor&rsquo;s License</li> <li>Offeror Allowed to Revive Expired Proposal</li> </ul> </div> </p>




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