Contractors anticipate that a fixed-price contract will generate a certain cash flow over the scheduled duration of the contract. This cash flow will absorb a portion of the contractor’s general and administrative costs. If the project owner suspends work and the contractor cannot bill as expected, the contractor incurs unabsorbed home office overhead. For decades, this has been measured according to the “Eichleay formula.”

In a recent case, a Florida court reaffirmed that the Eichleay formula is the only permissible method for calculating unabsorbed home office overhead. But, Eichleay damages can be recovered only when the contractor is forced to stand by for an indefinite period of time, unable to perform work under the contract and unable to pursue replacement work that could help absorb home office expenses.

Other cases this week involved a “build to lease” agreement and an arbitration clause in a prime contract. The “build to lease” contract should have been awarded in compliance with state competitive bidding statutes, as it amounted to a disguised construction contract. And, a broad flow-down clause in a subcontract did not incorporate the arbitration clause from the prime contract. The sub was not obligated to submit to arbitration.