When a project runs longer than planned for Employer reasons, the Contractor's head office continues to cost money that the delayed project is no longer contributing to. Recovering that unabsorbed overhead is one of the most contested heads of a prolongation claim, and three named formulas dominate the argument.
Why a formula at all
Head office overhead cannot be traced to a project the way idle plant can. It is an apportionment problem: how much of the company's general overhead should this project have carried during the extended period, and did the delay prevent the Contractor from earning that contribution elsewhere? Formulas exist because the direct evidence rarely does. Tribunals accept them as a method of estimation, not as proof of loss, and they generally require the Contractor to show it actually lost the opportunity to absorb overhead through other work.
The three formulas
| Formula | What it uses | Basic shape | Typical criticism |
|---|---|---|---|
| Hudson | The overhead and profit percentage from the Contractor's tender | (HO and profit % / 100) × (contract sum / contract period) × period of delay | Uses the tender allowance, which may be optimistic, and applies it to a contract sum that already includes overhead |
| Emden | The overhead and profit percentage from the Contractor's actual accounts | (actual HO and profit % / 100) × (contract sum / contract period) × period of delay | Same structure as Hudson; better inputs, same assumption that the project would have carried a proportionate share |
| Eichleay | Total company billings, project billings, total overhead, and days | Allocable overhead = (contract billings / total billings) × total overhead; daily rate = allocable overhead / days of contract; claim = daily rate × days of delay | US federal contract practice; less familiar in Gulf and Indian forums |
The condition that comes before any formula
Every formula assumes the Contractor could have used its capacity elsewhere and was prevented from doing so by the delay. If the company had spare capacity anyway, or if the head office cost did not actually continue, the apportionment produces a number without a loss behind it. Expect the Engineer or tribunal to ask for evidence of turnover, of tenders declined, or of resources tied up, before accepting any formula result.
Why a software tool should not calculate it
Which formula fits, what percentage to use, how to define the contract period, and whether the precondition is met are all judgment calls that depend on the Contractor's accounts and the tribunal's likely view. A tool that picks a formula and produces a figure invites the Engineer to attack the tool. The right design is to record the line-item costs that are directly provable, name the candidate formulas as options, and hand the choice and the figures to the expert with an explicit marker that they remain to be confirmed.
What this means in practice
- Keep the directly provable prolongation costs (site establishment, idle plant, staff retention) separate from the overhead argument.
- Preserve the accounts and tender data the formulas need; they are hard to reconstruct.
- Be ready to evidence lost opportunity, not just lost contribution.
- Let the expert choose the formula and defend it; never let a spreadsheet choose for you.
The DraftMyEOT prolongation cost module records line items and offers Hudson, Emden, Eichleay, or to-be-advised as radio options only, inserting an expert-to-confirm marker instead of a computed overhead figure.
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This article is general information about how these contract mechanisms typically work. It is not legal advice, and it is not a substitute for review of your specific contract by a qualified professional.