Contractor recovery of unabsorbed home office overhead, incurred during a period of suspended work, is a creature of federal construction contracts and the federal court system. The use of the Eichleay formula to calculate these damages is mandatory. The issue of unabsorbed overhead has gradually seeped into non-federal construction contracting and has been addressed by state courts. Some state courts, but by no means most, have expressly endorsed the use of the Eichleay formula.

A Louisiana appeals court was recently confronted with this issue. Eichleay had been occasionally discussed by that state’s courts but never expressly endorsed or disallowed. The appeals court allowed contractor recovery of unabsorbed home office overhead to stand. Award of these damages was within the proper discretion of the trial court.

The other case in this issue involves a wrongfully terminated subcontractor’s right to payment for the value of its work from the project owner. The sub could not recover in quantum meruit because it had worked under an express agreement with the prime contractor. The project owner was a third-party beneficiary of that agreement.

State law did not mandate contractor recovery of unabsorbed home office overhead calculated according to the Eichleay formula. But, award of those damages was within the discretion of the trial court.

An unpaid subcontractor, having failed to perfect its mechanic’s lien, could not recover for the value of its work from the project owner. “Quantum meruit” was not available because the work had been subject to an express contract with the prime contractor.

When a contractor settles its claims with the project owner, the proceeds are frequently insufficient to cover payment of all parties on the project. Contractors need to be aware that mechanic’s lien statutes in many states impose a trust on these settlement proceeds for the benefit of unpaid subcontractors and suppliers.

The prime contractor on a commercial project in New York advanced funds to its subs and suppliers during the construction process. It paid invoices for work and equipment for which the contractor had not received payment from the project owner. The contractor eventually settled its claims with the owner and attempted to reimburse itself for these advances but discovered it did not have unfettered discretion over the settlement funds.

The second case in this issue addresses a consulting engineer’s reluctance to express an opinion on the value of a contractor’s suspension of work claim against the project owner. The construction contract assigned this responsibility to the engineer. The engineer’s reticence placed the owner in breach of the construction contract.

The third case involves a public project owner’s refusal to consider a bid because the bidder failed to submit two original bid forms. Alabama’s highest court said the contractor was entitled to a court hearing on the propriety of the bid exclusion.

A contractor could not, without a court order, use settlement funds received from the project owner to reimburse itself for funds it had advanced to subcontractors and suppliers during performance of the work.

A public project owner’s failure to compel its consulting engineer to make a determination called for in the construction contract was a breach of that contract.

An allegedly low bid was excluded from consideration by the public project owner due to the bidder’s failure to submit a second original bid form. The Alabama Supreme Court ordered a hearing on the propriety of bid exclusion due to this minor irregularity.

Disputes over contract claims can sometimes get personal. After all, it’s individuals—real people—who interact on behalf of their respective organizations. Things get said, attitudes are conveyed. A contractor recently sued an employee of the municipal project owner, an employee of the consulting engineer and an employee of the construction manager. The allegations were interference with contract and business conspiracy.

The aggrieved contractor failed to consider the law of agency. Agents acting within the scope of their duties have an identity of interest with their principal—in this case, the municipal project owner. As a Virginia court said, “Consultants and employees advising a municipal owner act as its agents, not as third-party intermeddlers.”

The other case in this issue involved a public project owner’s attempt to void contracts based on the owner’s own irregularities during the procurement process. The effect of the voided contracts would have been to deny the contractor payment for $811,000 of completed work. The project owner did not succeed in this effort.

A public project owner’s employee, outside consultants, and employees of the consultants were acting as the project owner’s agents when evaluating and responding to a contractor’s claim for delay damages.

Substantial, not strict, compliance with a public works procurement statute is required of public project owners.