Understanding Unabsorbed Home Office Overhead

It is readily apparent that – if a project is delayed – the contractor is losing money.  The increased direct costs associated with the labor and equipment on site are obvious. The more complex question arises when considering the effect a delayed project has on a contractor’s recovery of its home office overhead, where “home office overhead” is defined as the cost of the contractor’s main office including, but not limited to, rent, utilities, executive and management salaries, staff, office equipment, office supplies, taxes, insurance, etc.  Everyone intuitively understands that a delayed project increases such costs in the same manner that that delays increase the project’s direct costs but increases in home office overhead cannot be directly correlated to any one project because a contractor typically has several projects with overlapping schedules underway at any given time.  Over the years, courts have attempted to determine the damages necessary “to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible.”  Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376, 1380-1381 (Fed. Cir. 2003).  “As a result, there are at least nine formulas that have been used,