When a contractor’s work is suspended by the project owner, two types of overhead continue despite the contractor’s inability to perform work: extended field overhead and continuing home office overhead. The latter is usually referred to as “unabsorbed” home office overhead, while field overhead consists of direct costs related to the performance of a specific contract. Home office overhead is one step removed and therefore viewed with skepticism. The Texas statutes make a distinction.
The Local Government Contract Claims Act waives government immunity to allow contractors to recover what they are owed under the contract. The statute authorizes recovery of a contractor’s increased cost to perform the work as a direct result of a public project owner’s suspension of the work. This has been interpreted to include extended field overhead expenses. However, the statute expressly disallows recovery of “unabsorbed home office overhead.”
The second case in this issue involves a contractual punch list procedure. The owner was deemed to have accepted work items not included on the punch list. However, contractor compliance with the procedure was a condition precedent to the owner’s waiver of a claim.
