FEDERAL COURT ALLOWS SUBCONTRACTOR TO RECOVER UNABSORBED HOME OFFICE OVERHEAD FOR GOVERNMENT DELAY EVEN THOUGH PRIME CONTRACTOR COMPLETED ON TIME.
By: Brian S. Case, Esq.
In a recent decision, a U.S. Court of Appeal for the Federal Circuit ruled that a subcontractor could recover unabsorbed home office overhead damages, under the Eichleay formula, for government-caused delay even though the prime contractor finished the contract on time. In E.R. Mitchell Constr. Co. v. Richard J. Danzig, Secretary of the Navy, 1999 (Fed. Cir.), the prime contractor had developed its project construction schedule with the participation and agreement of its subcontractors, including the mechanical subcontractor. The schedule clearly stated the line items of mechanical work and the date by which the mechanical subcontractor was to complete its work. The government approved the schedule. During performance, the government’s defective design specifications delayed the mechanical subcontractor’s work. As a result of the defective design, the mechanical subcontractor incurred 60 days of delay beyond the original base-line as-planned schedule. The prime contractor was still able to finish the contract on time. The prime contractor filed a “pass-through” claim with the Armed Services Board of Contract Appeals on behalf of the mechanical subcontractor for its delay damages. The ASBCA denied the claim and the contractor appealed to the Federal Circuit Court of Appeal. The Circuit Court reversed and made an award for the contractor and in its opinion included a statement that: “…we see no reason to exclude Eichleay damages of a subcontractor simply because the prime contractor completed its contract on time.” The Court emphasized that its decision was dependent upon the specific facts of the case, including the government’s awareness and approval of the mechanical subcontractor’s schedule completion dates.
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