Southwestern Engineering contracted with Cajun Electric to design and manufacture power plant components. Cajun suspended and then terminated the contracts for convenience. The court ruled that Southwestern could recover unabsorbed overhead costs (the cost of idle facilities and staff during the suspension) through an equitable adjustment clause, but could not recover the full contract price since the termination clause limited recovery to actual costs incurred. This means contractors can get paid for overhead losses during suspensions if they prove the work stoppage idled their resources.
Document all overhead costs during suspension periods—staff salaries, facility costs, equipment maintenance—to support an equitable adjustment claim for unabsorbed overhead.
Termination-for-convenience clauses that cap recovery to 'actual costs incurred' will not allow you to recover the full contract profit, even if the owner terminates without cause.
Include equitable adjustment language in your contract that explicitly covers unabsorbed overhead caused by owner-directed suspensions or delays, and define what costs qualify.