A contractor's cost-plus contract has a fee of 8% and actual project costs of $750,000. If there was a $50,000 cost overrun due to owner-requested changes, what is the contractor's total fee?
Correct Answer
D) $64,000
The contractor's fee is calculated on total allowable costs including approved changes. Total costs are $750,000 + $50,000 = $800,000. Fee = $800,000 × 0.08 = $64,000.
Why This Is the Correct Answer
In a cost-plus contract, the contractor's fee is calculated as a percentage of the total allowable project costs, which includes both the original costs and any approved change orders. Since the $50,000 cost overrun was due to owner-requested changes, it becomes part of the allowable costs. The total allowable costs are $750,000 + $50,000 = $800,000, and the contractor's fee is 8% of this total, which equals $64,000.
Why the Other Options Are Wrong
Option A: $60,000
This appears to add a flat amount to the base fee rather than calculating the percentage correctly on the total allowable costs.
Option C: $68,000
This calculates the fee only on the original project costs ($750,000 × 0.08 = $60,000) and incorrectly excludes the owner-requested changes from the fee calculation.
Memory Technique
Remember 'CAFE' - Cost-plus contracts include All Fees on Everything allowable (original costs + approved changes)
Reference Hint
Florida Building Construction Standards - Contract Types and Payment Methods chapter, specifically the section on Cost-Plus contracts and fee calculations
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