Government Contracts Precedent Did Not Bar Unabsorbed Home Office Claim
Tuesday, October 8, 2019

Precedent Did Not Bar Unabsorbed Home Office Claim

By Government Contracts Editorial Staff

A motion to dismiss a claim for unabsorbed home office overhead was denied by the Court of Federal Claims because precedent did not categorically bar the claim and the claim involved disputed facts. Ten days after award of the barracks renovation contract, the government notified the contractor to suspend any work pending a bid protest. The contractor sought “increased costs and unabsorbed home office expenses” for the three months it was on standby until the government issued a notice to proceed. Relying on Nicon, Inc. v. U.S. (CA-FC, 47 CCF ¶78,091), the government argued the unabsorbed overhead claim was barred because no Eichleay damages could be awarded for delays occurring before the government issues a notice to proceed, no alternative compensation formula applied, and the contractor did not meet the prerequisites for an award of unabsorbed overhead stated in Nicon. However, the viability of a claim for unabsorbed overhead brought by a contractor that is prevented from starting construction is one of the primary holdings in Nicon, and the decision did not categorically bar claims based on delays occurring before the government issues a notice to proceed.

Disputed Facts. The court disagreed with Redland Co. v. U.S. (FedCl, 55 CCF ¶79,560), which interpreted Nicon's limitation on the use of the Eichleay formula as a ban on the availability of unabsorbed overhead for pre-performance delays. Further, without binding precedent as to whether Nicon barred formulas other than the Eichleay formula to support an unabsorbed overhead claim, the contractor's claim was not foreclosed as a matter of law. Finally, whether the contractor met Nicon's strict prerequisites for unabsorbed overhead claims involved disputed facts. As to whether the delay extended the original time for performance, the parties disputed whether the contract was completed on time. The parties also disputed whether the contractor was on standby and unable to take on other work during the delay. (Kudsk Construction, Inc. v. U.S., FedCl, 63 CCF ¶81,737)

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