What is the Eichleay Formula?
The Eichleay Formula is a method used by federal courts to determine the value of a contractor’s claims for unabsorbed, home office overhead when a project has been delayed. These costs are associated with the contractor’s main office functions that support the field staff by providing payroll, computer and administrative support. The Formula is a simple ratio equation – a particular project’s contract amount is a percentage of the sum of all the contract amounts on a contractor’s books during a particular period of time. That percentage is applied to the contractor’s total overhead — during that same time period – to estimate the amount of overhead that can be “allocated” to the particular project being considered.
