The Eichleay formula consists of three steps intended to apply a calculated daily overhead rate to the number of days of delay.

Step 1. Computes the total fixed cost allocable to the delayed contract:

Contract Billing X Total (fixed) overhead for contract period

Total Billing

Step 2. Computes a daily contract fixed overhead rate:
Fixed Overhead allocable to the contract

Days of Performance

Step 3. Multiply the daily rate (determined by Step 2) to number of delay days

Unabsorbed Overhead = Daily rate X No. of days

It is the clarification of these terms in the formula and how auditors should review them that is the focus of much the guidance. (Editor’s Note. We present the material in a format that first discusses the issue and then identifies the approach auditors are asked to take when reviewing the proposed amount.)

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