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ARE 366: Contracts, Liability and Ethics

OVERHEAD CLAIMS
ARE 366 Contracts, Liability and Ethics
Dr. John Borcherding 1
Outline
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 Eichleay Formula

 Alternative methods of allocating home office


overhead
Eichleay Formula
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Contract Billings Total Overhead


Incurred During
Contract Total Period
Billings for
Actual Period

Overhead
Allocated to
Contract Overhead
Allocable to
Actual Days of Contract Per Day
Contract
Performance
Eichleay Formula (Continued)
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Overhead Number of Delay


Allocable to Days
Contract Per Day

Amount
Recoverable
Eichleay Formula (Continued)
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 Over allocates home office overhead


 Delay period and/or work stoppages required
little, if any, home office involvement in the
project

 Little home office attention at the end of project

 Under allocates home office overhead


 Delayed and disrupted projects require greater
home office attention
Alternative Methods of Allocating
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Home Office Overhead
 Accounting for home office overhead by
specific project accounts

 Certified public accountant audit report

 Contractually limit eichleay formula


calculations

 Negotiate home office overhead mark-up


percentages
Questions
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END
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ARE 366: Contracts, Liability and Ethics