A cost-plus contract has actual costs of $1,850,000 with a contractor fee of 6%. Additional costs due to owner-directed changes total $125,000. What is the total amount due to the contractor?
Correct Answer
B) $2,093,500
Total costs = $1,850,000 + $125,000 = $1,975,000. Contractor fee = $1,975,000 × 6% = $118,500. Total due = $1,975,000 + $118,500 = $2,093,500.
Why This Is the Correct Answer
The calculation follows two steps: (1) Add all costs including owner-directed changes: $1,850,000 + $125,000 = $1,975,000. (2) Calculate the contractor fee on the total cost: $1,975,000 × 6% = $118,500. (3) Add fee to total cost: $1,975,000 + $118,500 = $2,093,500. Under a cost-plus contract, the fee percentage applies to all reimbursable costs, including approved changes, because the contractor bears risk proportional to total project cost.
Why the Other Options Are Wrong
Option A: $2,086,000
$2,086,000 results from applying the 6% fee only to the original costs before the change order: $1,850,000 × 6% = $111,000; $1,850,000 + $125,000 + $111,000 = $2,086,000. This is incorrect because in a cost-plus contract the fee applies to all costs, including change-order costs.
Option C: $1,975,000
$1,975,000 represents the total costs only ($1,850,000 + $125,000) without adding the contractor's fee. This answer omits the 6% markup entirely — a calculation error that treats the contract as a straight cost-reimbursement without a fee component.
Option D: $1,961,000
$1,961,000 appears to result from applying the 6% only to the change amount ($125,000 × 6% = $7,500) and then adding incorrectly, or from another partial-calculation error. It does not correspond to the correct cost-plus formula.
Memory Technique
For cost-plus math: 'All costs in, THEN multiply.' Step 1: Pool all costs together (original + changes). Step 2: Multiply the pool by (1 + fee%). Or: Total = (Base Costs + Change Costs) × 1.06. Never apply the fee to only part of the costs.
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