Delay claims (Loss and Expense)

Hudson , Emden and Eichleay Formulae

Which one is more suitable for EOT claims for loss and expense ?

Other than the formulae , are there any other method to calculate, like based on actual ?

I heard Pro-rata prelim claim is not a recognised concept in dealing with loss and expense arising from delays.

Anyone to advice the approach.

Forensic Claims Analysis

Toby Hunt 👤 Member for 18 years 10 months

Mon, 2013-04-29 16:46 · Permalink

Tim

There is a variety of calculations designed to approximate the loss of contribution said to be involved with project delays:

•The ‘Hudson’ formula relies on the allowance for overheads said to have been made by the contractor in his pricing for the particular project; the claim seeks to use the allowance made as the basis from which to mimic the cost/loss due to the delay.It is entirely prospective.

•The Eichleay formula is entirely retrospective. It proceeds on the basis that the contractor is entitled to recover a proportion of the overhead incurred by the organisation as a whole over the actual contract period. The proportion recoverable is represented by the ratio that the value of the particular contract bears to the contractor’s turnover as a whole.

•The Emden formula ascribes to the contract in question an amount in respect of overheads proportional to the value which the contract in question bears to the total turnover of the organisation. It is a mix of prospective (contract sum and contract period) and retrospective (actual overhead)

However, experience shows that factors other than project delays generate further overheads e.g. suspension of work, non-critical path project delay, adverse impacts on the efficiency of execution of construction work.

It might therefore be said that the volume of physical construction work involved, whether temporary or permanent perhaps best coincides with how the majority of contractors in practice allow for overheads in their price . It is the approach promoted by a number of reported cases e.g. BerleyIndustries, Inc. v. City of New York 412 NYS2d 589 (1978). which concerned a contract to be carried out over 2 years that took approximately a further year to complete because of delays caused by the Employer. By the end of the original 2-year period some 87% of the value of the work had been carried out. The Eichleay formula produced a substantial extended overhead claim. The New York Court of Appeals remitted the case for reconsideration, indicating that the extent of work carried out should be given due prominence in the evaluation of further overheads claims.

Regards

Toby

Mike Testro 👤 Member for 20 years 5 months

Sun, 2013-04-28 19:26 · Permalink

Hi Tim

For any of the formula approaches for loss of head office overheads to be succesful there are a number of gates to pass.

The first is how many invitations to tender were decilned because key staff were locked up in the delayed project - there has to be letters confirming this.

Next: are the Key Staff still employed?

Then what exactly is the head office overhead that needs to be allocated - has business expansion in other areas reduced the required input - this may need an independent audit for proof.

In a tribunal the formula's rarely pass all the gates but they are a good ruse to boost the claim value.

Just be prepared to drop them when they are shown to be unjustified.

Best regards

Mike Testro

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