Michael T. Callahan on Redland Co. v. United States and Contractor's Claims / Eichleay Damages

In Redland Co. v. United States, 97 Fed. Cl. 736, 2011 U.S. Claims LEXIS 518 (Fed. Cl. Apr. 7, 2011) [enhanced version available to lexis.com subscribers], the contractor's claim for unabsorbed home office overhead could not strictly comply with court-imposed restrictions on the Eichleay formula and failed. In this Analysis, Michael T. Callahan discusses the Redland Co. decision, which limits the circumstances under which a contractor "stands by" while a project is suspended, making collection of Eichleay damages more difficult. Mr. Callahan writes:

     In Redland Co. v. United States, the court held that being "ready to resume work at full speed as well as immediately" was a strict requirement, one that was separate from the requirement that the delay or suspension be of uncertain duration. If a contractor was given a reasonable amount of time to gather its equipment and personnel after a suspension was lifted, the contractor was not on standby. Nor was a contractor on standby if the government required immediate resumption of the work, but only with a reduced work force that allowed the contractor to gradually increase its work force. Rather, in order to be on standby, the contractor must be required to keep at least some of its workers and necessary equipment at the site, even if idle, ready to resume work on the contract.

     Redland did not claim that it had workers or equipment present at the work site during the period of suspension. Rather, Redland asserted that it was a local contractor that could keep equipment and forces close-by, and did in fact re-commence on short notice. Although Redland was a local contractor, there was no evidence that it had equipment or personnel at any location either waiting idly for work to begin or doing work on other projects that could be immediately stopped. Redland's vice president could not identify any specific resources, but merely offered that Redland would have used either in-house equipment or rental equipment. Rather than keeping resources idle and ready to commence work immediately, Redland relied on its ability to rent equipment in order to begin work when the suspension was lifted. According to the court, these were signs of a fully employed construction company that would increase its resources to perform additional work, not one that was waiting on standby with its existing resources constantly at the ready.

     ....

     Practice Note. To be on "standby" equipment must be on site and waiting to work, not at some off-site storage waiting to mobilize. Operators for the equipment may need to be present. Other employees may need to be assigned to the project and on-site, and paid, but not working. Contractors must have committed to subcontracts. If a contractor wants to collect its unabsorbed home office overhead costs it must be spending money. There must be actual expenses to which the unabsorbed overhead may be attached. The contractor must balance the additional cost it must incur in order to put itself in position to collect Eichleay damages with the chance it may not be permitted any recovery.

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