How are head office overheads claimed? Hudson, Emden and Eichleay
From your actual records first, with a formula such as Hudson, Emden or Eichleay only where the records cannot show the loss directly.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
Head office overheads are the costs of running your business that each job helps to pay for: offices, directors, accounts and insurance. When a job overruns, it can tie up that capacity without earning anything more to cover it. That shortfall is the head office claim. Start with actual cost. That means the time your directors and managers spent on the delay, from diaries and payroll, and any work you turned away. The formulas estimate the loss instead. Hudson multiplies three things: the overhead and profit percentage in your tender, the subcontract sum per week, and the weeks of delay. Emden works the same way, but takes the percentage from your audited accounts. Eichleay, an American method, shares out your actual overheads by the job's share of your turnover, then applies a daily rate to the delay. Our head office overheads calculator sets all three side by side on your own figures. The SCL Delay and Disruption Protocol does not support Hudson, and prefers Emden or Eichleay where a formula is used at all. Whatever the method, you still need evidence that the delay stopped you earning that money elsewhere.
Example
Illustrative example. The scenario and figures are invented.
The facts
A steel fixing subcontractor's £520,000 subcontract runs 5 weeks past its 26-week period, and the 5 weeks are granted as an extension of time. Its tender carried 8 per cent for head office overheads and profit, and its audited accounts show 12 per cent.
What happens
- Recorded cost comes first. Diaries and payroll show £4,600 of director and manager time spent on the delay.
- The subcontract sum per week is £520,000 over 26 weeks: £20,000.
- Hudson gives 8 per cent of £20,000 for 5 weeks: £8,000.
- Emden gives 12 per cent of £20,000 for 5 weeks: £12,000.
- The firm turned down a tender in the third week of the overrun for lack of capacity, and has the email to show it.
The head office head in figures
| Method | Amount |
|---|---|
| Recorded director and manager time | £4,600 |
| Hudson, tender at 8 per cent | £8,000 |
| Emden, accounts at 12 per cent | £12,000 |
The outcome
The head goes in at £12,000 on Emden, with the turned-down tender as evidence and the £4,600 of recorded time as the fallback. The main contractor's surveyor agrees £9,000.
To have the head office head built and claimed for you, see our Delay & Disruption Claim service.
Sources
- Delay and Disruption Protocol, 2nd edition, February 2017. Society of Construction Law.