Contractors Head Office Overheads Entitlement for Delays – Emden Formula

Emden Formula

The Emden’s Formula was seen as the successor to the Hudson’s Formula and similarly to the Eichleay Formula it attempts to allocate the Contractors total Head Office Overheads to the specific project first on  a proportionate basis and then on a daily basis.

A)  The Basic Formula

The basic Emden’s formula calculation utilises both overheads and profit costs as part of the calculation and then multiplies the results by the Employer caused delays as follows.

Total Overheads & Profit / Total Company Turnover

x

Gross Contract Sum

x

Period of Employer Delay

=

Head Office Overheads Entitlement

100

Planned Contract Period

B)  Sample Calculation

For this example we shall assume that the original Contract Amount is RM 3,000,000.00. The original Contract Period was to be 315 days. The Contractor has suffered compensatable delays amounting to 50 calendar days. The Contractor’s Head Office Overhead was RM 1,000,000.00 (5% of Turnover). The Contractors Turnover for the period was RM 20 million Then the sample calculation of Contractors entitlement to Head Office Overhead recovery due to the delay would be as follows:

1,000,000.00

x

3,000,000.00

x

50.00

=

23,810.00

20,000,000.00

100

315

 

Thus, in this simple example, the Contractor’s entitlement is calculated at RM 23,810.00 in respect Head Office Overhead costs as a result of the delays.

C)  Potential Problems Associated with Adopting the Emden’s Formula

Where the Emden’s formula is based estimated amounts or an approximation based on what was planned the calculation takes no account of the actual situation which may be far from what was initially planned.

It is reasonable when questioning the applicability of the Emden’s formula to demand that the Contractor base his calculation on the audited accounts of the Contractor for the period thus removing the arguments which may remain if the figures are not based on the audited accounts.