MODIFIED ON REMAND: May 31, 1996 GSBCA 12639-REM JAY P. ALTMAYER, NANCY HIRSCHLER, JANE BESKIN, AMSOUTH BANK, N.A., AS TRUSTEE UNDER THE WILL OF CLAIRE POLLOCK, AND JAY P. ALTMAYER AND AMSOUTH BANK, N.A., AS CO-TRUSTEES UNDER THE WILL OF MARVIN C. ALTMAYER, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. W. Alexander Moseley of Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, AL, counsel for Appellant. Robert W. Schlattman, Office of General Counsel, General Services Administration, Washington, DC, and Diana Parks Curran, Office of Regional Counsel, General Services Administration, Atlanta, GA, counsel for Respondent. Before Board Judges DANIELS (Chairman), NEILL, and DeGRAFF. DANIELS, Board Judge. The General Services Administration (GSA) contracted with Jay P. Altmayer, Nancy Hirschler, Jane Beskin, AmSouth Bank, N.A., as trustee under the will of Claire Pollock, and Jay P. Altmayer and AmSouth Bank, N.A., as co-trustees under the will of Marvin C. Altmayer -- a group to which we refer collectively as "Lessor" -- to lease to the Government office space in Savannah, Georgia. The contract required Lessor to "build out," or renovate, the space to the Government's specifications. The renovation was not completed until months after the date originally anticipated. Lessor maintained that the Government caused the delay and was liable for resulting damages. Specifically, Lessor asked that it be paid for its own loss of rental income and costs of electricity, and for the following costs incurred by its subcontractor, Haas Construction, Inc.: escalation of costs of materials; extended job site overhead; supervision costs during the delay period; acceleration costs (overtime pay for supervisory personnel); and unabsorbed home office overhead during the delay period. Lessor also asked that it be paid subcontractor overhead and profit markups, and its own profit markup, on all of the subcontractor's costs. The Board agreed with Lessor that the Government was responsible for the delay. We held that Lessor was entitled to only some of the damages claimed, however, and ultimately directed GSA to pay Lessor $54,881.94 plus interest. Jay P. Altmayer, et al. v. General Services Administration, GSBCA 12639, 95-1 BCA 27,515. Lessor asked the Court of Appeals for the Federal Circuit to review the portions of our decision dealing with the claims for loss of rental income, subcontractor acceleration costs, subcontractor unabsorbed home office overhead, and profit markups. The Court affirmed our holdings as to all of these items except unabsorbed home office overhead. Altmayer v. Johnson, 79 F.3d 1129, 1132 n.* (Fed. Cir. 1996). It reversed us on this matter, finding that Haas met the prerequisites for entitlement to these costs, and remanded the case for further proceedings on the matter. Id. at 1134. Discussion According to the Court of Appeals, the "primary issue" before it was "whether the board erred in holding that Haas was not entitled to recover its extended home office overhead under the Eichleay formula." Altmayer v. Johnson, 79 F.3d at 1132. The decision which the Court issued in this case was at least the eighth in the past four years in which it has discussed this formula. In addition to Altmayer v. Johnson, these decisions include Mech-Con Corp. v. West, 61 F.3d 883 (Fed. Cir. 1995); Wickham Contracting Co. v. Fischer, 12 F.3d 1574 (Fed. Cir. 1994); Interstate General Government Contractors, Inc. v. West, 12 F.3d 1053 (Fed. Cir. 1993); Daly Construction, Inc. v. Garrett, 5 F.3d 520 (Fed. Cir. 1993); Community Heating & Plumbing Co. v. Kelso, 987 F.2d 1575 (Fed. Cir. 1993); and C.B.C. Enterprises, Inc. v. United States, 978 F.2d 669 (Fed. Cir. 1992). The Court has explained: Home office overhead costs are those that are expended for the benefit of the whole business, which by their nature cannot be attributed or charged to any particular contract. . . . The Eichleay formula approximates extended home office overhead costs . . . . When the government disrupts or delays a contract, thereby reducing the contractor's stream of direct costs against which to charge its overhead costs, "it is appropriate to use the Eichleay formula to calculate extended home office overhead instead of the fixed percentage rate formula because the latter would not adequately compensate the contractor for extended home office overhead." Altmayer v. Johnson, 79 F.3d at 1132-33 (citations omitted). The formula itself is as follows: contract billings total overhead total billings for x for contract = overhead allocable contract period period t o t h e contract allocable contract overhead = daily contract overhead actual days of contract performance daily contract overhead x days of delay = amount recoverable C.B.C. Enterprises, 978 F.2d at 673; Capital Electric Co. v. United States, 729 F.2d 743, 747 (Fed. Cir. 1984). This formula, or something very similar to it, has been used by courts and boards for many years. According to the decision for which the formula is named, Eichleay Corp., ASBCA 5183, 60-2 BCA 2688, aff'd on reconsideration, 61-1 BCA 2894, the earliest antecedent was Fred R. Comb Co. v. United States, 103 Ct. Cl. 174 (1945). The Court of Appeals has traced the lineage back still further, to Herbert M. Baruch Corp. v. United States, 93 Ct. Cl. 107 (1941). C.B.C. Enterprises, 978 F.2d at 672. In what precise circumstances should the Eichleay formula be applied? The Court has stated: To establish entitlement to costs under the Eichleay formula, we have held that a contractor must show: (1) a government- imposed delay; (2) that the contractor was on "standby"; and (3) that the contractor was unable to take on other work. Mech-Con, 61 F.3d at 886 (citing Interstate, 12 F.3d at 1056; and cited in Altmayer v. Johnson, 79 F.3d at 1133). According to the Court, the Board misconstrued the second prong of this test. Altmayer v. Johnson, 79 F.3d at 1133. The term "standby" turns out to be somewhat of a misnomer. In an early use of it, the Court said that the formula should be used where there is "evidence that the contract changes resulted in a delay in performance which required [the contractor] to stand by idly and suspend its work." Community Heating, 987 F.2d at 1582. The Court later recognized that this statement was open to misinterpretation; it said that the term "refer[s] to standing by in the sense that no work is being performed on the contract, not that there must be workers physically standing by idly." Interstate, 12 F.3d at 1061 n.5. Thus, "[p]roperly understood, the 'standby' test focuses not on the idleness of the contractor's work force (either assigned to the contract or total work force), but on suspension of work on the contract." Id. at 1057. The Court has also said that "standby" means that "the contractor is required to remain ready to resume work on short notice" during a government-imposed delay which is uncertain in duration. Mech-Con, 61 F.3d at 886. With the issuance of Altmayer v. Johnson, the Court of Appeals has modified the meaning of "standby" still further. The contractor's workforce not only do not have to be idle for the test to be met, but also do not have to be idle in performing under the contract in question. Now, "the linchpin to entitlement under Eichleay is the uncertainty of contract duration occasioned by government delay or disruption." 79 F.3d at 1133. The Court acknowledged that Haas performed work on this contract throughout the delay period, and that the Government "never fully suspend[ed] the contract." Id. at 1133-34. From these facts, the Board initially concluded -- incorrectly, we have learned -- that the firm was never standing by; it could not have been "ready to resume work" because all its personnel at the jobsite were already working at all relevant times. In reversing our conclusion, the Court decided that because the Government "so disrupted and delayed Haas's performance that [Haas] was never able to perform the contract as planned, . . . we have permitted recovery under Eichleay." Id. at 1134. The Eichleay formula is therefore applicable to "contract extensions," as well as "contract suspensions." Id. Haas consequently "met the standby test." Id. The Court concluded explicitly that "Haas met the prerequisites for entitlement under the Eichleay formula." 79 F.3d at 1135. Consequently, our task on remand is to find the numbers which will allow us to fill in the blanks in the formula and thereby calculate the extended home office overhead to which Haas (through Lessor) is entitled. Haas's billings for the contract to build out Lessor's interior space to meet the Government's requirements were $1,652,513.54. The company's total contract billings between the date this work began (August 31, 1992) and the date it ended (May 28, 1993) were $2,107,083.64. Appellant's Exhibit 24; Transcript at 81-82. The former figure divided by the latter yields 78.4 percent. Haas has documented home office overhead expenses of $127,962.33 in 1992 and $125,264.29 in 1993. Appellant's Exhibit 23; Transcript at 73. We make one comment and two adjustments to these figures. The comment is as to payroll taxes. GSA is concerned that these taxes may pertain to salaries of employees other than those who worked in the home office. Because the company kept separate records for such taxes that burdened direct labor, Transcript at 77-78, we conclude that the taxes included as home office overhead burden only salaries of home office employees. We deduct from the overhead claimed $9,268.74 in 1992 and $2,409.82 in 1993. These amounts pertain to several items used in calculating these figures -- advertising, entertainment, tax penalties, interest expenses, and miscellaneous expenses. Appellant's Exhibit 23. None of the first four of these items is allowable under the Federal Acquisition Regulation, 48 CFR 31.205-1, -14, -15, -20 (1993). We do not allow "miscellaneous" expenses, either, because the lack of specific identification precludes knowledge of whether these costs are allowable or not. We add to the overhead claimed $5,000 in each year. Haas actually incurred, but did not include in the figures presented, between five and six thousand dollars of depreciation in each year. Transcript at 83. Depreciation is an allowable expense. 48 CFR 31.205-11 (1993). With these subtractions and additions, Haas's home office overhead was $123,693.59 in 1992 and $127,854.47 in 1993. To find the total for the contract period, Lessor has properly prorated Haas's figures for the number of days encompassed within the contract period (123 days in 1992 -- August 31 through December 31 -- and 148 days in 1993 -- January 1 through May 28). Prorating the amounts determined by us, the correct figure for total overhead in the contract period is $93,411.52. Multiplying this last number by 78.4 percent yields $73,234.63 in overhead allocable to the contract. Haas Construction performed under the contract from August 31, 1992, to May 28, 1993, a total of 271 days. Dividing the overhead allocable to the contract by 271 days yields a figure of $270.24 in daily contract overhead. But for the Government's having delayed contract completion, Haas would have finished its work on February 9, 1993. Thus, the delay, to May 28, consumed 108 days. The total amount recoverable under the Eichleay formula is the daily contract overhead ($270.24) times the number of days of delay (108), or $29,185.92. In our earlier decision in this case, we determined that GSA was liable for the direct costs of additional work performed by Haas as a consequence of the delay -- $32,585.04 in burdened salaries of Haas personnel who remained on the jobsite, supervising ongoing work, and $11,127.58 in expenses incurred because those individuals were there. (The expenses were for transportation, lodging, meals, job site telephone, pager, trash removal, photographs of the job site, and delivery service.) Altmayer v. GSA, 95-1 BCA at 137,124. We also held that GSA was obligated to pay $649.20 because material ordered for the project increased in cost by that amount as a result of the Government- caused delay. Id. at 137,125. The Court of Appeals did not disturb these findings. The Court has held that where direct costs increase because of "pure contract extensions" or "continuous original and additional changes work," a percentage markup from those costs, rather than the Eichleay formula, should be used to compensate the contractor for overhead costs. Community Heating, 987 F.2d at 1582; C.B.C. Enterprises, 978 F.2d at 674-75. We initially considered that this principle was applicable to the direct costs incurred by Haas on this project. Consequently, we erroneously determined that the same markup used throughout contract performance, ten percent, should be applied to these costs to compensate Haas for its overhead expenses. The sum calculated was $4,436.18. 95-1 at 137,126. The Court vacated this portion of our decision. Altmayer v. Johnson, 79 F.3d at 1135. Evidently, it considered that the additional work Haas performed during the delay period was pursuant to a "contract extension," and thus subject to the Eichleay formula for determinations of overhead, rather than a "pure contract extension," and thus subject to a percentage markup for overhead purposes. The effect of the Court's vacating our award of $4,436.18 and directing us to calculate overhead in accordance with the Eichleay formula (which we find to be $29,185.92) is that the total amount due the appellant is increased by $24,749.74. We consider that one further adjustment must be made, however, to complete the determination of Government liability. We applied the percentage markup, now vacated, not only to the costs associated with Haas's additional work on the project, but also to the increased cost of materials purchased by this contractor. It seems to us that the latter cost is best understood as resulting from a constructive change to the contract -- the Government effectively directed Haas to purchase carpet in March 1993, rather than October 1992, as Haas had planned to do. Consequently, the contractor is entitled to its standard overhead markup on this expense, regardless of the way in which the overhead stemming from the additional work should be calculated. We therefore add ten percent of $649.20, or $64.92, to the total sum due. Decision We originally held that GSA was obligated to pay Lessor a total of $54,881.94, plus interest in accordance with 41 U.S.C. 611 (1988). We now increase this amount by $24,814.66, to $79,696.60 plus interest. _________________________ STEPHEN M. DANIELS Board Judge I concur: _________________________ EDWIN B. NEILL Board Judge DeGRAFF, Board Judge, concurring. I agree with the majority that our task is to calculate the extended home office overhead to which Haas is entitled, and I agree with the majority's calculations. I do not join in the majority's comments and analysis concerning the decision of our appellate authority. _________________________ MARTHA H. DeGRAFF Board Judge