Article Date: 08/27/2012

Experts Offer Slew of Potential Remedies to Problems Involving the Eichleay Formula

By Steve Rizer


There are many potential remedies to problems associated with using the controversial, more-than-a-half-century-old Eichleay Formula in construction estimating, but certain steps need to be taken for those remedies to work, Navigant Construction Forum Executive Director James Zack told a group of professionals attending a webinar that WPL Publishing held earlier this month. Zack and fellow presenter David Halligan, associate director of Navigant Global Construction Practice in San Francisco, summarized a slew of potential remedies during the interactive event, entitled “Practical Problems with Pricing Delay Using Eichleay.”


“All of these remedies have to be included in your contract documents before you bid it, so you need to think about this during the design phase, project planning phase, and, frankly, you need to think about them only after seeking competent legal advice in your jurisdiction because some of the things that we suggest here, while they may be allowed in some jurisdictions, may not be allowed in others,” Zack told a target audience of public and private owners, construction managers, contractors, subcontractors, consultants, architects, engineers, and attorneys.


The Eichleay Formula is designed to allocate a company’s home office overhead (HOOH) to a project and then divide that gross number, the project allocation number, into a daily cost.


“The bottom line here, and this is really important to remember, is that the Eichleay Formula is not an accounting formula, the way people tend to treat it,” Zack said. “It’s an estimating formula.”


There are several perceived problems with the Eichleay Formula. Many accountants and auditors consider it to be an accounting formula. Many owners do not consider HOOH a real cost and that Eichleay pays too much. Many contractors believe that there are too many restrictions on collecting HOOH.


To inquire about obtaining a recording of the webinar, call WPL Publishing at (301) 765-9525.



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