A contractor discovers unexpected rock conditions requiring additional excavation costs of $25,000. The original contract was $500,000. If the change order includes a 15% markup on the additional work, what is the new contract amount?
Correct Answer
B) $528,750
The change order cost is $25,000 × 1.15 = $28,750. Adding this to the original contract: $500,000 + $28,750 = $528,750.
Why This Is the Correct Answer
The correct answer is B because change orders must include both the base cost of additional work plus any applicable markup. The contractor incurs $25,000 in additional excavation costs, but applies a 15% markup to cover overhead and profit on this extra work. This results in a change order amount of $28,750 ($25,000 × 1.15), which when added to the original contract of $500,000 gives a new total of $528,750.
Why the Other Options Are Wrong
Option A: $525,000
Option A only adds the base additional cost of $25,000 to the original contract without applying the 15% markup, resulting in $525,000. This fails to account for the contractor's overhead and profit on the change order work.
Option C: $533,750
Option C appears to apply an incorrect calculation, possibly adding the markup percentage directly as dollars ($25,000 + $8,750 = $33,750 change order) rather than multiplying by 1.15, resulting in $533,750 total.
Option D: $575,000
Option D incorrectly applies the 15% markup to the entire original contract amount ($500,000 × 1.15 = $575,000) rather than just applying it to the additional work costs of $25,000.
Memory Technique
Remember 'MAC' - Markup Additional Costs only. The markup percentage applies to the extra work, not the whole contract.
Reference Hint
Chapter 4 - Contract Administration and Change Orders in Florida Construction Law reference materials
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