A general contractor receives a change order request that will add $25,000 to the contract price and extend the completion date by 10 days. The contract allows for a 10% markup on change order work. What should be the total change order amount?
Correct Answer
A) $27,500
The change order amount includes the direct costs plus the allowed markup: $25,000 + ($25,000 × 0.10) = $25,000 + $2,500 = $27,500. The time extension is handled separately from the cost calculation.
Why This Is the Correct Answer
Option B is correct because change orders must include both the direct cost of the additional work and any contractually allowed markup. The $25,000 represents the base cost of the change order work, and the contract specifically allows for a 10% markup on change order work. This markup compensates the contractor for overhead and profit on the additional scope. The time extension is a separate consideration that doesn't affect the monetary calculation.
Why the Other Options Are Wrong
Option B: $30,000
Option A only includes the direct cost of $25,000 without applying the contractually allowed 10% markup, which would shortchange the contractor's entitled compensation.
Option C: $35,000
Option D applies a 40% markup ($25,000 × 1.40 = $35,000) which is significantly higher than the contractually allowed 10% markup and would be an overcharge.
Memory Technique
Remember 'Base + Markup = Total' - think of it like adding tax to a purchase, but here you're adding the contractor's allowed profit margin to the direct costs.
Reference Hint
Florida Building Code - Administrative Chapter 1, Section on Contract Modifications and Change Orders, or AIA Document A201 General Conditions regarding change order pricing
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