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.
