Delay Damages: Contractor HOOH Formulas 4 Of 4 (ODOT & VDOT)
This posting introduces the Specified-Rate Formula for calculating a contractor’s unabsorbed home office overhead costs after experiencing an excusable, compensable delay. Unlike the Eichleay, Canadian, Hudson, and Manshul Formulas that either must be performed, or are usually performed, after the project is complete, some owners include a home office overhead Specified-Rate Formula in their construction contracts to compensate contractors for their unabsorbed home office overhead costs for compensable delays.
For example, the Ohio Department of Transportation (ODOT) 2016 Construction and Material Specifications includes a Specified-Rate Formula to compensate contractors for “home office overhead, unabsorbed home office overhead, extended home office overhead, and all other overhead costs” for excusable, compensable delays of 10 calendar days or more. Interestingly, ODOT does not compensate a contractor for its home office overhead costs for all excusable delays. In fact, it limits a contractor’s recovery of its home office overhead costs to the following instances:
Delays due to utility or railroad interference within the Project limits. Delays due to an Engineer-ordered suspension. Delays due to the neglect of the Department or its failure to act in a timely manner. Aside from a delay caused by a third-party interference within the project limits, ODOT treats the contractor’s recovery of home office overhead costs as “unabsorbed” home office overhead costs. ODOT’s formula for calculating a contractor’s daily home office overhead rate is as follows:
Where:
A = original contract amount
B = original contract duration in calendar days
C = home office overhead rate from table below
Therefore, ODOT applies different home office overhead percentages depending on the magnitude of the project’s original contract amount. The larger the original contract amount the lower the home office overhead percentage.
Then, the contractor’s home office overhead daily rate is multiplied by the number of compensable calendar days of delay that meet the requirements above. Similarly, the Virginia Department of Transportation (VDOT) 2016 Road and Bridge Specification uses a nearly identical formula to calculate a contractor’s home office overhead costs for a delay. However, the only difference is that VDOT’s uses a 6% home office overhead percentage for all projects, not a variable rate based on the project’s original contract amount. Additionally, VDOT limits the contractor’s recovery of home office overhead costs to only the instances when the contractor was required to be on standby and disallows recovery of home office overhead for delays caused by extra work performed on a force account basis or by increased quantities.
Unlike the previous formulas, this Specified-Rate Formula could be used to compensate the contractor for home office overhead costs at any point in the project. Said another way, the owner doesn’t have to wait until the project is complete and the contractor’s actual costs are known to compensate the contractor of its unabsorbed home office overhead costs.
For more on this or any other topic, please call me at 215-814-6400 or email me at mark.nagata@traunerconsulting.com.
