Are Eichleay Damages Dead or Just Dying?
 
November 7, 2006
 
Christopher J. "Chris" Weiss- Orlando

Broward County, etc. v. Brooks Builders, Inc., 4th District Court of Appeal, Case No. 4D04-2715 (July 27, 2005)

A Florida court has put another nail in the coffin of Eichleay damages. It adopted the more restrictive Federal standard regarding the recovery of unabsorbed or underabsorbed home office overhead calculated using the Eichleay formula. Under this stricter rule, a contractor must demonstrate effective suspension of much or all of its work to satisfy the standby requirement for entitlement to Eichleay damages.

Broward County hired Brooks to build a fire station adjacent to an airport runway. Due to the location of the construction site, the contract required strict compliance with airport security measures, which increased significantly after the terrorist attacks of September 11, 2001. Increased security measures, deficient architectural plans, and the County’s denial of change orders resulted in numerous delays. The certificate of substantial completion was not issued until more than half a year after the project was scheduled to be completed. The contractor brought a breach of contract action against the County. The contractor sought damages, including Eichleay damages related to home office overhead costs, resulting from delays caused by the County. Sounds like a good case for Eichleay? No, the Court responded.

Contractors are now allowed to recover unabsorbed home office overhead only if they can show that nearly all of the work was suspended, forcing the contractor into a standby position. The principal’s testimony did not demonstrate the effective suspension of much or all of the work on the contract. Trial exhibits documented the contractor’s monthly draws, which showed that work continued despite the delays. Continued performance of any substantial work on the contract will not give rise to a contractor’s entitlement to home office overhead damages under Eichleay. Brooks could have recovered unabsorbed home office overhead only if it could meet this very difficult standard akin to a constructive suspension of work. When work merely proceeds in an inefficient manner, no recovery of home office overhead through an Eichleay calculation is available.

Several states have expressly recognized the use of the Eichleay formula, including California, Maryland, Ohio, Texas and Virginia. It will be interesting to see if these states, like Florida, also adopt the more restrictive federal rule. It is also important to understand that Eichleay is not yet dead. However, decisions like Brooks significantly narrow the factual situations under which a contractor will be able to rely on Eichleay to recover home office overhead.

For more information, e-mail Christopher J. Weiss at christopher.weiss@hklaw.com or call toll free, 1-888-688-8500.