L&E - Head Office Overheads Flashcards
What are the three formulae commonly used to calculate Head Office overheads?
The Hudson, Emden, and Eichleay formulae are commonly used to calculate Head Office overheads.
What is the main limitation of the Hudson formula?
The main limitation of the Hudson formula is that it relies on the adequacy of the tender and might result in double counting, potentially overestimating the actual loss and/or expense.
What is the difference between the Hudson and Emden formulas?
The difference between the Hudson and Emden formulas is that the Hudson formula uses the head office overheads and profit percentage in the tender, while the Emden formula uses actual overheads and profit percentage.
What are the two main requirements for a contractor to succeed in a claim for lost contribution to head office overheads?
To succeed in a claim for lost contribution to head office overheads, a contractor must prove that other work was available, which they would have secured if not for the delay, and they must demonstrate that they could have used the lost turnover profitably at the time of the delay.
What are the benefits of adopting Abrahamson’s theory in construction contracts?
Adopting Abrahamson’s theory in construction contracts ensures fair compensation for contractors affected by delays, providing them with the necessary resources to cover overhead costs. Additionally, the theory encourages the efficient use of site management resources, incentivizing contractors to minimize delays and optimize project execution.
What are some best practices for addressing head office overhead recovery?
Best practices for addressing head office overhead recovery include maintaining accurate records, providing comprehensive documentation, using audited accounts, and encouraging open communication and negotiation between the parties involved.
What are the limitations of the Emden and Eichleay formulae?
Limitations of the Emden and Eichleay formulae include the potential for inaccurate accounting of head office overheads and profit contributions, especially when a significant proportion of the final contract valuation consists of variations. Additionally, the Emden formula requires accurate data that may be challenging to obtain.
How can contractors provide sufficient evidence and documentation to support their claims for head office overhead recovery?
Contractors can provide sufficient evidence and documentation by maintaining detailed records, audited accounts, and other relevant evidence to attribute ‘dedicated overheads’ to specific Employer Delays. This can help establish a clear connection between the delay and the incurred overheads, enabling a more accurate assessment of loss and/or expense.
Why is it essential to avoid double recovery in claims related to head office overheads?
It is essential to avoid double recovery in claims related to head office overheads to ensure fairness and prevent contractors from being overcompensated for their loss and/or expense, which can lead to disputes and mistrust between parties.
What are some recommendations for employers to minimize disputes related to head office overhead recovery?
Employers can minimize disputes related to head office overhead recovery by incorporating contract provisions that address overhead recovery, maintaining open communication with contractors about delays and their causes, and engaging in negotiation to reach mutually agreed-upon solutions.
What is the primary revenue-earning instrument according to Abrahamson’s theory?
According to Abrahamson’s theory, a contractor’s site management resources serve as the primary revenue-earning instrument.
Why is it important to cross-check the results of one formula for head office overhead recovery with another?
Cross-checking the results of one formula for head office overhead recovery with another is important because it helps ensure a more accurate assessment of loss and/or expense, as different formulas may produce inconsistent results based on specific inputs.
What is the role of record-keeping in head office overhead recovery claims?
Record-keeping is essential in head office overhead recovery claims because it helps to establish a clear connection between the delay and the incurred overheads. Detailed records can also support the inputs used in chosen formulae and provide evidence of lost opportunities to earn profit and unabsorbed overheads.
Why is open communication crucial for resolving claims related to head office overheads and profit?
Open communication is crucial for resolving claims related to head office overheads and profit because it fosters understanding, facilitates negotiation, and can lead to mutually agreed-upon solutions. It also helps to build trust between parties and minimize disputes arising from misunderstandings or inaccuracies.
How can audited accounts help in determining an appropriate profit rate for head office overhead recovery claims?
Using the contractor’s audited accounts from the three previous financial years closest to the Employer Risk Events can help determine an appropriate profit rate by providing a more accurate reflection of the contractor’s historical profit performance.
