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Practical Problems Pricing Delay Using the Eichleay Formula
Since 1960 the Eichleay Formula has been used to price extended and/or unabsorbed home office overhead. Most in the construction industry treat the Eichleay Formula as an accounting mechanism – seldom understanding that the Armed Services Board of Contract Appeals created this “formula” as an estimating tool, not an accounting method. There are some practical problems with the Eichleay Formula. From the accounting perspective, there are several major flaws built into the formula. From the project owner’s perspective, there is a risk of overcompensation unless certain contractual defenses are employed. And, from the contractor’s perspective, there are issues with the applicability and the use of the formula. This webinar examines the traditional Eichleay Formula from all three viewpoints to identify the problems and offer some recommendations on how to alleviate them.
Webinar Objectives
The session will provide attendees with a better understanding of the Eichleay Formula including its weaknesses and flaws from the perspectives of the accountant/auditor, the contractor, and the owner. The session will offer attendees 19 different alternatives to the Eichleay Formula which may be employed through incorporation in the contract documents prior to bidding.
Webinar Agenda
- Introduction
- What is Home Office Overhead (HOOH)?
- Typical HOOH Costs
- How does HOOH become a project cost?
- What is the Eichleay Formula & how does it work?
- The genesis of the Eichleay Formula
- Practical problems with the Eichleay Formula
- Accountants & auditors
- Owners
- Contractors & a new hurdle
- Some potential remedies
- Conclusion
- Questions & discussion
Webinar Highlights
- The elements of Home Office Overhead (HOOH)
- How HOOH is typically recovered
- What is the Eichleay Formula
- How the Eichleay Formula operates
- History of the formula
- Potential problems with using the Eichleay Formula to price delay from the viewpoint of the accountant/auditor, the owner, and the contractor
- Potential remedies including
- Some ways to prohibit recovery
- Ways to change the rules concerning HOOH recovery
- Creation of a mid-course HOOH recovery method
- Bid daily delay cost
Who Should Attend
- Owners
- Contractors
- Construction Executives
- Subcontractors
- Design professionals
- Construction managers
James G. Zack, Jr.
Jim is the Principal, James Zack Consulting, LLC and Senior Advisor, Ankura Construction Forum™. The Forum strives to be the construction industry’s resource for thought leadership and best practices on avoidance and resolution of construction project disputes globally. Formerly he was the Executive Director of the Navigant Construction Forum™ and earlier, the Executive Director, Corporate Claims Management Group, Fluor Corporation, one of the world’s largest EPCM contractors. Mr. Zack was previously Vice President of PinnacleOne and the Executive Director of the PinnacleOne Institute and a Senior Construction Claims Consultant for CH2M HILL, Inc. Mr. Zack has, for...
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