The Board of Supervisors of Louisiana State University and Agriculture and Mechanical College (LSU) awarded a contract to Harbor Construction Company, Inc. to replace acid basin tanks at the LSU Clinical Sciences Research Building in New Orleans. On July 22, 2004, LSU instructed Harbor to stop work on the project after Harbor severed a sewer pipe located six feet below the work site. Harbor was allowed to resume the work on November 11, 2004. Harbor sued LSU to recover its direct and overhead expenses. The trial court awarded direct expenses of $17,225.07 and overhead expenses of $33,828.90. LSU appealed.
Harbor played no part in the preparation of the bid documents, plans and specifications. It was clear the site plan did not show the pipe that was ultimately severed. In reviewing the contract documents, the court of appeal was convinced they did not place an obligation on the contractor to discover hidden conditions, although they did require the contractor to become familiar with the facilities, difficulties and restrictions involved in executing the contract, verify all dimensions and site conditions that may affect the cost of the project, and verify site conditions that may affect the cost of the project. There was an LSU internal memorandum referring to a change order for an excavation to reveal hidden conditions, but the memorandum was never provided to the contractor, and the request for proposal and Harbor’s proposal and final change orders did not mention hidden conditions. There was conflicting testimony as to the reason why LSU shut the job down. Harbor’s representatives testified it was shut down not because of the broken sewer pipe, but because of the poor condition of the soil at the bottom of the pit. An LSU representative testified to the contrary. It was apparent the trial court was of the opinion the severance of the pipe did not cause the soil condition that led to LSU’s decision to stop work.
Except for a minor error in the calculation of direct expenses, the court of appeal affirmed their award. The court of appeal also affirmed the award for home office overhead. It cited, with approval, the Eichleay formula for their computation. The Eichleay formula determines home office overhead by computing the daily amount of overhead the contractor would have charged to the contract had there been no delay, and gives the contractor this amount of overhead for each day of delay that has occurred during the work. The court of appeal specifically held a contractor is entitled to recover for wasted overhead expenses as an element of damages. They are recoverable where, as a result of the defendant’s conduct, the contractor may have suffered a work stoppage and wasted overhead expenses because labor and equipment were idle during a stoppage. Overhead or indirect expenses consist generally of expenses of a business enterprise for salaries of executives, central office staff personnel, rent, communications, vehicles, utilities, interest on borrowed capital and numerous other expenses which are necessary for the operation of the business, but which are not directly attributable to a particular construction job or project. They are, in fact, an expense and a true cost of doing business. The expenses need not be proved item by item. Harbor Construction Company, Inc. v. The Board of Supervisors of Louisiana State University and Agricultural and Mechanical College, 2010-1663 (La.App. 4th Cir. 5/12/11), 69 So.3d 498.