What is the Eichleay Formula used for?

Answer: Eichleay Formula is used for solving the disputes created in Home Office overhead cost on contracts with the federal government, dealing with construction delay claims in various projects.

The basic concept of the formula is that it calculates the home office overhead costs as a function of revenue of the firm concerned where the total home office overhead cost, subject to allocation to the project are divided throughout the duration of the project which includes the period of delay in order to reach to reach a daily home office overhead rate ( also known as HOOH). After that the daily rate need to be multiplied with compensable delay duration for getting the extended HOOH costs.

HOOH cost ( allocable to project ) = $( total contract billings/total billings of company over the contract period)\times (home ofice overhead for the contract period)$

Daily HOOH cost for contract = $( allocable HOOH to project/performance period of contract)$

unabsorbed HOOH =$Daily home office overhead \cos t for contract \times Delay days$