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    Is the subcontractor entitled to any costs under Eichleay for unabsorbed overhead? Are they entitled to Eichleay for only the first 14 days or do they need to remain on standby for the entire time that the govt. was shutdown in order to support any claim under Eichleay?


    Answer

    A prime contractor may sue the government on behalf of its subcontractor, in the form of a “pass through suit,” only if the prime contractor is liable to the subcontractor for addition costs incurred.  If the prime’s liability to the subcontractor cannot be proven, the government will retain its sovereign immunity from pass-through suits.  Serverin v. United States, 99 Ct. Cl. 435 (1943), cert. denied, 322 U.S. 733 (1944); E.R. Mitchell Constr. Co. v. Danzig, 175 F.3d 1369 (Fed. Cir. 1999).

    The subcontractor may be entitled to recovery of unabsorbed overhead, however there are some questions and considerations that need to be addressed prior to application of the Eichleay Formula.  Generally speaking, the contractor bears the risk of both time and cost for delays that it causes or which are within its control; while the government is responsible for time and cost effects of delays that it causes or are under its control.  In the situation you describe, you may have both circumstances.  One could argue that the delay and subsequent additional cost for the period of the government shutdown falls within the parameters of an excusable delay per
    FAR 52.249-10 Default.  However, relief is not automatically granted, rather the contractor must show that the event caused a delay to completion and that there was a cost impact. 

    There are further requirements for excusable delays in that the event must be beyond the control of the contractor.  In exploring what is under the contractor's control, one must consider whether the event was foreseeable, could the contractor have prevented it from occurring, and could it have been overcome by the contractor. This aspect may be key in your situation.  If any of these conditions apply, the contractor may be held responsible.  Further, when a delay is caused by problems encountered by a subcontractor, the contactor has an added burden in establishing whether it was an excusable delay.  Overall the contractor must show the event caused a delay to the overall completion of the contract and establish the number of days of relief to which it is entitled. 
    FAR 52.242.14 Suspension of Work addresses cost impact to the contract resulting from a delay. 

    Recovery of costs under this clause is granted only for delays that are unreasonable in duration.  Clearly the determination of whether the subcontractor is entitled to recoup unabsorbed overhead and for how many days is dependent on a more detailed analysis of all of the factors that created the impact and what actions were or were not taken by the parties to reduce the schedule and cost impact to the project, if any, resulting from the shutdown.  The Government would have to prove that the Subcontractor “could have” found work for (all or part of) the 14 days.  Your program attorney should assist with assessing the facts and the application of the regulations; however you may also want to review Nash & Cibinic "Administration of Government Contracts" Chapter 6 Delays, which discusses various case law and application of the clauses identified in this response.

     
     
    Normally the delay costs that are incurred due to government suspension of work are just the overhead and key positions that can't be re-assigned and therefore remain unabsorbed (project superintendent, key staff positions are pretty specialized and nearly impossible to re-assign for short periods).  However, this round of government shut-downs was different and I suspect this is going to provide challenges for the field construction offices across the government.
     
    Contractors are supposed to take actions to minimize costs.  But since the shutdown was of indeterminate length and most every day the news media reported immanent re-opening, making a business call to demobilize/reassign equipment (and now idle work crews) would have been impossible.  Once shut down, even gaining access to demobilize and re-assign that equipment (now on standby and billing at rental rates) would have been almost impossible.  Unless the field office was particularly insightful and gave the contractor a definitive time period to stop and resume work, all of that equipment and idle work crew is “potentially” allowable under the Eichleay rules in addition to the normal key personnel/field office trailer.
     
    The extra 30 days to re-start is interesting in that the Subcontractor was able to find work (but now can't get back on the government job for some reason) so that may mitigate the cost argument.  For "normal" construction equipment and work crews, the argument of not getting them back for 30 days doesn't have much merit.  However, there may be some kind of specialized equipment involved.  For example, the concrete lane rigs that are used to lay out large tracks for concrete for highways, airfields and warehouse floors - there are only so many that exist in the country.  Dredging work is another example.  There are a limited number of dredge rigs available in the US.  Scheduling nightmares such as weather delays on one job can ripple across all others in the queue. 
     
    In conclusion, both the consideration of unabsorbed overhead and the 30-day re-start delay require thorough assessment of all of the facts in making equitable adjustment determinations.


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