When a federal contracting officer stops work on a job for an open-ended period, the home office keeps paying its salaries and rent. The suspended job stops carrying its share of those costs, because it is billing little or nothing. Contractors call the stranded share unabsorbed home office overhead.
On federal construction, the courts price it with the Eichleay formula, a three-step allocation by billings. The Defense Contract Audit Agency (DCAA) lays the formula out in Chapter 12 of its Contract Audit Manual, the guide its auditors use on delay claims, in a revision dated September 18, 2026. The liquidated damages post priced the field cost of a late finish. This post covers who can recover the home office cost and then works the formula on an example job.
Where the formula comes from
DCAA says the formula comes from a 1960 decision of the Armed Services Board of Contract Appeals and that the Court of Appeals for the Federal Circuit has widely relied on it as the legal standard for unabsorbed overhead on construction contracts.
The usual route to recovery on a fixed-price federal job is FAR 52.242-14, the Suspension of Work clause. If the contracting officer’s act, or failure to act, suspends or delays the work for an unreasonable period, the clause calls for an adjustment for the added cost of performance, excluding profit. Two deadlines apply. Costs incurred more than 20 days before the contractor gives written notice are not allowed, though that limit does not apply to a claim from a written suspension order. The claim itself must be in writing, with an amount, no later than final payment.
Who qualifies
The Federal Circuit set out the tests in P.J. Dick Inc. v. Principi, decided April 7, 2003, and DCAA’s manual follows them. The tests run in this order:
- The government caused the delay, and no other delay ran concurrently with it.
- The delay extended the contract’s time of performance. A contractor that finished on time can still qualify if it planned from the start to finish early, had the capacity to, and would have finished early without the government’s actions.
- The contractor was on standby. A written order that suspends all the work for an uncertain duration and requires the contractor to stay ready to resume settles this. Without one, the contractor must show the delay had no set end, that it had to be ready to return immediately at full speed, and that it could not bill substantial work on the contract during the delay.
- Once those are proven, the government has to show it was practical for the contractor to take on replacement work. If it does, the contractor must prove it could not find enough.
The court wrote, “Only where the above exacting requirements can be satisfied will a contractor be entitled to Eichleay damages.” P.J. Dick lost on standby. Its billings during one suspension period were 47% of prior months, and the court agreed with the board that it kept performing substantial work on the contract. It still recovered home office overhead, because the parties had stipulated daily rates for field and home office overhead on any day that qualified under the Suspension of Work clause.
The three steps
The formula assigns fixed home office cost to the job by its share of company revenue, then turns that amount into a daily rate:
- Overhead allocable to the contract equals the contract’s billings divided by total company billings for the same period, multiplied by total fixed overhead for that period. The billings fraction is called the allocation ratio.
- The daily contract overhead rate equals the allocable overhead divided by the days of performance.
- Unabsorbed overhead equals the daily rate multiplied by the delay days.
DCAA adds rules for each input. Every figure covers the same interval, the contract’s actual performance period from start to completion, extension included. “Billings” means recognized revenue, cost plus profit, under one consistent method, percentage-of-completion or completed-contract. If the claim goes in before the job finishes, prospective figures are allowed when they can be reasonably estimated, and every input then runs to expected substantial completion. Any unabsorbed overhead already estimated comes out of contract billings, since leaving it in counts it twice.
The overhead pool holds only fixed home office costs that benefit all jobs. Job site overhead charged directly to the contract stays out. DCAA’s examples of variable costs to exclude include small tools and shop supplies, and it splits semi-variable costs, so electricity’s line charge stays in and its usage charge comes out.
Counting delay days
Delay days are the days the government delay added past the original or revised completion date. The DCAA manual gives these cases:
| Case in the DCAA manual | Delay days counted |
|---|---|
| 70-day contract, a 20-day government delay after day 50, work finished on day 85 | 15 |
| Finished 20 days late, 15 days from a government delay and 5 from contractor inefficiency | 15 |
| Finished within the original or revised performance period | 0 |
The zero case has the same early-completion exception as the second test above.
A worked example
The figures below are an example. A general contractor holds a 300-day federal contract for a clinic. On day 120 the contracting officer issues a written order suspending all work for an uncertain period and requiring the crew to be ready to return on short notice. The order is lifted 60 days later, and the job finishes on day 360. Under P.J. Dick, the written order settles standby.
Start with the home office ledger for those 360 days and sort each cost as fixed or variable.
| Home office cost | Cost over the 360 days ($) | In the Eichleay pool |
|---|---|---|
| Executive and officer salaries | $1,500,000 | Yes (fixed) |
| Accounting and IT staff salaries | $1,000,000 | Yes (fixed) |
| Office rent and the fixed line charge for utilities | $600,000 | Yes (fixed) |
| Business insurance and property taxes | $300,000 | Yes (fixed) |
| Depreciation on office equipment | $200,000 | Yes (fixed) |
| Small tools and shop supplies that track field labor | $250,000 | No (variable) |
| Usage portion of the yard's electricity bill | $50,000 | No (variable) |
| Fixed home office overhead used in the formula | $3,600,000 |
Then run the three steps with revenue recognized over the same 360 days.
| Line | Value |
|---|---|
| Revenue recognized on the clinic contract during the 360 days | $9,000,000 |
| Revenue recognized on all company contracts during the same 360 days | $45,000,000 |
| Allocation ratio | 20% |
| Fixed home office overhead during the 360 days | $3,600,000 |
| Step 1: overhead allocable to the clinic contract | $720,000 |
| Days of performance | 360 |
| Step 2: daily contract overhead rate | $2,000 |
| Delay days | 60 |
| Step 3: unabsorbed home office overhead | $120,000 |
The clinic carried 20% of company revenue during its performance period, so 20% of the $3.6 million pool, or $720,000, belongs to it. Spread over 360 days, that is $2,000 a day, and the 60 delay days come to $120,000. With the same pool and $60 million of company revenue, the allocation ratio drops to 15%, the daily rate to $1,500, and the claim to $90,000.
The superintendent and the field office for those 60 days are a separate line, because DCAA keeps job site overhead out of this pool. The field cost table in the liquidated damages post shows how to price them per calendar day. Profit stays out of both, under FAR 52.242-14.
Private contracts
On private work, the contract language governs recovery. In the AIA A201-2017 general conditions, section 15.1.7 is a mutual waiver of consequential damages, and its list of the contractor’s waived damages includes principal office expenses and the pay of personnel stationed there. Check that section before building a home office overhead claim on an A201 job.
How to start on your jobs
Once a year, sort the general and administrative ledger with the controller into fixed and variable costs, using DCAA’s tests above. Keep the split next to the work-in-progress schedule, which already holds revenue recognized by job.
On the next federal job, log every suspension the day it starts. Record whether a written order covers all the work, whether the crew had to stay ready, what the job billed that month against the month before, and the date of written notice, so that no cost falls outside the 20-day limit in FAR 52.242-14. The total float post shows how to track whether the suspension moved the completion date.