Head office overhead: Hudson, Emden and Eichleay

When a project runs late, a contractor argues that its head office costs, such as executives, estimating, accounting and rent, were tied up for longer than planned and could not be recovered from other work. That is the head office overhead claim. It is usually calculated with a formula, and the formula you choose, and the percentage you put into it, can change the answer several times over. This lesson explains the three main formulas and how to test them.

Learning outcomes

• Explain the theory of unabsorbed head office overhead.
• Calculate head office overhead using the Hudson and Emden formulas, and describe Eichleay.
• Explain the Canadian background, including Ellis-Don v. Toronto Parking Authority.
• Test a head office overhead claim for its key assumptions.

The lesson

The theory

A contractor's head office costs are recovered through the overhead built into each contract. If an owner delay extends a project, the argument goes, the contractor's capacity was held on that project longer, so it either lost the chance to earn overhead elsewhere or had overhead that went unabsorbed. Courts generally expect some evidence for that theory, not just a formula, though in Ontario formulas have been applied, including the formula from Ellis-Don Ltd. v. Toronto Parking Authority (1978) [2].

Three formulas

Hudson takes the head office overhead and profit percentage in the tender, multiplies it by the contract sum divided by the contract period, and multiplies by the days of delay. It relies on the tender percentage, which may have been optimistic or competitive. Emden uses the same structure but takes the percentage from the contractor's actual accounts: total head office overhead and profit divided by total turnover. Eichleay, developed in the United States, allocates overhead in proportion to the project's share of the contractor's billings during the contract period, converts it to a daily rate over the days of performance, and multiplies by the delay.

Testing a claim

• Is the delay compensable, and for how many days?
• Is the percentage from audited accounts or from the tender?
• Does the percentage include profit, and is profit claimable here?
• Is there evidence the contractor could not take on other work, or that overhead truly went unabsorbed?
• Is head office cost already included in the site overhead or Change Order markups?

CCDC 2-2020 GC 6.5 allows reasonable costs for owner-caused delay [1]. Whether head office overhead is a reasonable cost on the facts, and in what amount, is exactly what the test questions are for.

Northgate worked example

Northgate Distribution Centre (fictional) is a 12,000 m² tilt-up warehouse in Vaughan, Ontario, built by Halvorsen Builders Ltd. (fictional) under CCDC 2-2020, with Ridgeline Architects Inc. (fictional) as Consultant. See the Northgate fact sheet. This course follows one delay claim from first notice to settlement. Ready-for-Takeover (M9) was due Friday, January 14, 2028 and was reached on Tuesday, March 14, 2028: 60 calendar days late. All events, dates and amounts are illustrative.

Halvorsen claimed head office overhead using Hudson: a 4.4% head office overhead and profit allowance from its tender, applied to the $34,950,000 Contract Price over the 319-day baseline contract period, for 60 days. That gives $4,820.69 per day and $289,240 (rounded).

The owner's representative asked for Halvorsen's audited financial statements for the two most recent years. Its actual head office overhead was 2.4% of turnover, excluding profit. Using Emden at 2.4% gives $2,629.47 per day. Applied to the 18 compensable days only, the result is $47,330 (Figure 2).

View the data

Item	Value
Hudson, 4.4%, 60 days (claimed)	$289,240
Emden, 2.4%, 60 days	$157,768
Emden, 2.4%, 18 compensable days	$47,330

Halvorsen argued for Hudson because its tender percentage was the agreed basis. The owner's answer: the contract allows reasonable costs, the audited accounts show actual costs, and 42 of the 60 days carry no entitlement to cost. The parties settled this head at $47,300.

Your move

If you are the owner

• Ask for audited accounts. The percentage decides the answer.
• Apply any formula to compensable days only.
• Check for double counting. Head office costs in site overhead or markups.
• Ask for evidence of lost opportunity. A formula alone is weak.

If you are the contractor

• Keep head office cost records ready. Audited statements support Emden.
• Show capacity was tied up. Bids declined or staff held on the project.
• Separate overhead from profit. Know which your contract allows.
• Don't use the formula as the only proof. Pair it with facts.

Common mistakes

1. Applying a formula to all delay days.
2. Using a tender percentage without checking actuals.
3. Double counting with site overhead.
4. No evidence of unabsorbed overhead.
5. Including profit where only costs are recoverable.

Quick quiz

1. Where does the Hudson formula take its percentage from?

   1. Audited accounts
   2. The tender
   3. An industry average
   4. The owner

2. What makes Emden different from Hudson?

   1. It uses billings
   2. It uses the actual percentage from the contractor's accounts
   3. It ignores delay days
   4. It is only for owners

3. How does Eichleay allocate overhead?

   1. By tender percentage
   2. By the project's share of billings during the contract period
   3. By headcount
   4. By floor area

4. Halvorsen's Hudson daily rate was about $4,821. What was the Emden daily rate at 2.4%?

   1. $1,450
   2. $2,629
   3. $4,821
   4. $7,200

5. Which Ontario case's formula was applied in DCM Erectors (2018)?

   1. Schindler v. Walsh
   2. Ellis-Don v. Toronto Parking Authority
   3. Golden Hill v. Kemess
   4. W.A. Stevenson v. Metro Canada

Show answers and explanations

1. B. Hudson uses the tender allowance.
2. B. Emden uses actual overhead and profit over turnover.
3. B. Contract billings over total billings.
4. B. 0.024 × $34,950,000 ÷ 319 = $2,629.47.
5. B. The Master applied the Ellis-Don formula.

Key terms

Head office overhead

Company-wide costs not tied to one site, such as executives, accounting and rent.

Unabsorbed overhead

Head office cost not recovered because a project ran longer than planned.

Hudson formula

Tender overhead percentage × (contract sum ÷ contract period) × delay days.

Emden formula

Hudson's structure, with the percentage from actual accounts.

Eichleay formula

Overhead allocated by the project's share of billings, converted to a daily rate.

References

1. Canadian Construction Documents Committee, CCDC 2-2020 Stipulated Price Contract, GC 6.4 to 6.6 and Part 8. Clause content checked against a publicly posted tender copy; buy the form from CCDC.
2. Jonathan Speigel, Speigel Nichols Fox LLP, Lost profit and overhead (October 3, 2018), on DCM Erectors Inc. v. Guarantee Co. of North America, 2018 ONSC 2961, which applied the formula from Ellis-Don Ltd. v. Toronto Parking Authority (1978, Ont. H.C.J.).
3. Fenwick Elliott, The SCL Delay and Disruption Protocol: a second edition (November 2017), summarizing the Society of Construction Law Protocol, 2nd edition (February 2017).
4. BRC, Northgate fact sheet (fictional case study, v1, November 4, 2026).

Verified on November 9, 2026.

Next lesson in this trackOwner counterclaims: LDs and back-charges