A contractor receives a change order that increases the contract value by $75,000. The original contract was $1,200,000. If retainage is 8%, how much additional retainage will be held?
Correct Answer
C) $6,000
Additional retainage = Change order amount × Retainage percentage = $75,000 × 8% = $6,000.
Why This Is the Correct Answer
The question asks for additional retainage on the change order amount only, not the total contract value. When a change order increases the contract by $75,000, the additional retainage held is calculated by applying the 8% retainage rate to just the change order amount: $75,000 × 8% = $6,000. This represents the extra money that will be withheld from payments related to the change order work.
Why the Other Options Are Wrong
Option A: $96,000
$96,000 represents 8% of the total new contract value ($1,275,000 × 8% = $102,000, but this is close to total retainage, not additional). This incorrectly calculates retainage on the entire contract rather than just the change order amount.
Option B: $102,000
$102,000 represents the total retainage that would be held on the entire new contract value of $1,275,000 ($1,200,000 + $75,000) × 8%. This calculates total retainage rather than the additional retainage from the change order.
Option D: $9,600
$9,600 appears to be a calculation error, possibly mixing up percentages or amounts. It doesn't correspond to any logical calculation using the given contract amounts and retainage percentage in this scenario.
Memory Technique
Remember 'CHANGE = ADDITIONAL': When calculating additional retainage, only apply the percentage to the change order amount, not the total contract value.
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