Using the Eichleay formula to recover unabsorbed indirect costs in a request for equitable adjustment
Sequestration presents multiple challenges to many, including federal contractors. In these uncertain times, methods like the Eichleay formula, especially in a request for equitable adjustment (REA), could help contractors minimize negative impacts, while also assisting to recoup some of the losses resulting from full or partial terminations.
There are various methods for estimating due relief for unabsorbed indirect cost. However, the Board of Contract Appeals and Courts has generally ruled that the Eichleay formula is the acceptable method for computing unabsorbed overhead resulting from government-caused stoppage or delay. For construction contracts, the Court of Appeals for the Federal Circuit has endorsed the formula’s use, and likewise, the Armed Services Board of Contract Appeals supports this useful strategy in manufacturing and supply contracts.