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(CDR-3167) Home Office Overhead - Which Formula Should You Use?

Level: Basic
Venue: 2019 AACE International Conference & Expo, June 16-19, 2019, New Orleans, LA, USA

Abstract: Unabsorbed home office overhead is a well-known, but not well-understood delay damage. Like extended field office overhead, it is only recoverable by a contractor that has experienced an excusable, compensable delay. Typically, contractors allocate their home office overhead costs across their projects using some formula, often based in some way on the size of the project. But when a project is delayed, the contractor may not always be able to generate adequate compensation from each project to cover its home office overhead costs. Some contracts specify how a contractor’s extended home office overhead costs should be calculated, but most do not. While there are various home office overhead formulas (Eichleay, Canadian, Manshul, Allegheny, etc.) used to calculate a contractor’s unabsorbed and extended home office overhead costs, each is slightly different from the other and can produce very different results. This paper will describe the difference between unabsorbed and extended home office overhead costs, detail how the various home office overhead formulas calculate a contractor’s home office overhead costs, and identify how each of the methods calculate a contractor’s unabsorbed or extended home office overhead costs differently from one another using an owner-directed suspension example and an extended project duration example.