In construction disputes, claims for damages arising out of delay and prolongation often involve components such as head-office overheads, loss of profit and other indirect costs that are inherently difficult to quantify with precision. In such circumstances, tribunals and courts have, over time, accepted formula-based approaches such as the Hudson, Emden and Eichleay methods as tools to estimate such losses. The damages under contract law are governed by the principle of restitution, i.e., placing the injured party in the same financial position it would have occupied had the breach not occurred. This principle, originating from Hadley v. Baxendale (1854) 156 ER 145, requires the claimant to establish breach, causation and resultant loss. In construction disputes, this exercise becomes complex due to the presence of multiple overlapping delay events, inadequate contemporaneous records and issues of concurrency. It is within this context that formula-based approaches have emerged as a pragmatic, albeit imperfect, solution.Formula-based methods allocate a proportion of a contractor’s overheads and profit to the delayed project using standard ratios. The Hudson formula, for instance, derives overhead and profit percentages from tender documents and applies them over the period of delay. The Emden formula relies on actual financial data derived from audited accounts to reflect the contractor’s real overhead structure. The Eichleay formula computes unabsorbed overheads based on a contractor’s overall billings and is typically applied in cases involving suspension of work.In McDermott International Inc. v. Burn Standard Co. Ltd (2006) 11 SCC 181, the Supreme Court held that formula-based methods may be adopted where precise computation is not feasible, but that their application must be supported by credible evidence and cannot substitute proof of actual loss. Similarly, in Unibros v. All India Radio (2023) SCC OnLine SC 1366, the Supreme Court reiterated that formulae such as Hudson do not prove loss of profit by themselves and must be supported by evidence showing actual loss of opportunity and financial impact.Courts in other jurisdictions have adopted a similar approach. In Walter Lilly & Co. Ltd v. Mackay (2012) EWHC 1773 (TCC), the English High Court held that formula-based methods may be permissible where direct evidence is unavailable, but they must be grounded in factual data and should not result in overcompensation. Further, in Costain Ltd. v. Charles Haswell & Partners Ltd [2009] EWHC 3140 (TCC), the English High Court held that damages must be based on evidence and cannot be awarded on the basis of notional or impressionistic calculations.Further, formula-based approaches may result in double recovery where overheads are already compensated through variation orders or other claims. The Supreme Court in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd 2023 SCC OnLine SC 1208 cautioned against such overcompensation and held that damages must reflect actual loss rather than theoretical entitlements. Similarly, in Bharat Coking Coal Ltd. v. L.K. Ahuja, (2004) 5 SCC 109, the Supreme Court held that a claim for loss of profit cannot be granted in the absence of proof that the contractor suffered such loss and was unable to deploy its resources elsewhere.Despite these limitations, formula-based approaches continue to be used as evidentiary tools, particularly in situations where precise records are unavailable or where the complexity of the project makes direct quantification impractical. However, their use is subject to strict scrutiny. The claimant must demonstrate why a formula-based method is appropriate, establish a clear causal link between the delay and the claimed loss, and ensure that the resulting computation reasonably reflects the actual financial impact.In conclusionFormula-based damages assessment represents a balance between practicality and precision in construction disputes. While methods such as Hudson, Emden and Eichleay provide a structured approach to quantifying complex claims, they cannot override the fundamental requirement of proof. Courts have consistently held that such formulae are aids to assessment and not substitutes for evidence. Therefore, their application must be grounded in factual data, supported by contemporaneous records and aligned with the principles of causation, mitigation and compensation. In the absence of these safeguards, reliance on formula-based methods risks undermining the integrity of damages assessment and may lead to awards that are inconsistent with established principles of contract law.About the author:Ronak Desai is a construction lawyer and heads International Construction Law Offices, Mumbai (ICLO). Email: rd@constructionlawoffices.com