A project has an estimated direct cost of $850,000. The owner requires a 15% contingency and the contract includes liquidated damages of $1,500 per day for delays beyond the 180-day completion period. What is the total project budget including contingency?
Correct Answer
B) $977,500
Contingency calculation: $850,000 × 0.15 = $127,500. Total budget: $850,000 + $127,500 = $977,500. Liquidated damages are potential costs, not included in the initial budget.
Why This Is the Correct Answer
The correct answer is A because the total project budget includes only the direct costs plus the contingency amount. The direct cost of $850,000 multiplied by the 15% contingency rate equals $127,500 in contingency funds. Adding this to the original direct cost gives us $977,500 as the total project budget. Liquidated damages are not included in the initial budget calculation as they represent potential future costs only if delays occur.
Why the Other Options Are Wrong
Option A: $1,247,500
This amount ($1,127,500) incorrectly includes additional costs beyond the required contingency, possibly mistakenly factoring in liquidated damages or using an incorrect contingency percentage.
Option C: $1,127,500
This amount ($1,247,500) is significantly higher than the correct calculation and likely includes liquidated damages or other costs that should not be part of the initial project budget.
Memory Technique
Remember 'DPC' - Direct costs Plus Contingency only. Liquidated damages are 'Later Damages' - they don't belong in the initial budget calculation.
Reference Hint
Florida Building Construction Standards - Chapter on Project Cost Estimation and Contingency Planning
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