Contractor recovery of unabsorbed home office overhead has long been controversial. Project owners consider these damages phantom costs designed to inflate claims. Contractors counter that they reasonably anticipate a fixed-price contract to absorb a certain percentage of home office expenses over the scheduled period of contract performance. When work on the contract is suspended, those expenses must be absorbed by other contracts.

The project owners seem to be winning the argument. The courts – particularly the federal courts – have imposed multiple restrictions and prerequisites on recovery of unabsorbed home office overhead. Yet another example recently came out of the U.S. Court of Federal Claims.

A government agency issued a notice-to-proceed under a contract, but before the contractor even mobilized at the site, the government suspended work. Four years later, the government directed the contractor to commence work. The contractor was denied unabsorbed home office overhead because its forces were never required to stand by at the jobsite. Immediate mobilization in response to the directive to commence work did not, in itself, establish a standby position.

Other cases this week involve a mechanic’s lien arising out of a contract with a tenant and termination for convenience of a delivery order. The contractor could maintain a lien on the property because the improvements were performed with the affirmative assent of the landlord. And, the delivery order was a stand-alone contract, so denial of termination costs could be appealed by the contractor.