A project is 85% complete when the owner requests a significant design change that will add $75,000 and 3 weeks to the schedule. The contractor's overhead rate is $2,500 per week. What should be included in the change order pricing?
Correct Answer
C) $75,000 plus $7,500 overhead plus contractor profit
A change order should include direct costs ($75,000), extended overhead for 3 weeks ($7,500), and reasonable profit on the additional work. Contractors are entitled to profit on change order work just as on original contract work.
Why This Is the Correct Answer
Change orders must include all legitimate costs incurred by the contractor due to the change. This includes the direct costs of the additional work ($75,000), extended overhead costs for the time extension ($2,500 × 3 weeks = $7,500), and reasonable profit on the additional work. Contractors are entitled to profit on change order work just as they are on the original contract work, as this is additional scope that generates revenue.
Why the Other Options Are Wrong
Option A: Only the $75,000 direct cost
This option only includes direct costs and ignores the contractor's legitimate right to recover extended overhead costs and profit on the additional work, which would result in the contractor losing money on the change order.
Option B: $75,000 plus $7,500 for extended overhead
While this option correctly includes direct costs and extended overhead, it fails to include profit on the additional work, which contractors are legally entitled to receive on change order work just as on original contract work.
Option D: Only extended overhead costs since other work is nearly complete
This option incorrectly assumes that only overhead costs matter and ignores the substantial direct costs of the additional work, plus it fails to include profit, making it completely inadequate for proper change order pricing.
Memory Technique
Use the acronym 'DOP' - Direct costs, Overhead (extended), Profit. All three must be included in every change order.
Reference Hint
Florida Building Code - Administrative provisions, Chapter 1, or contractor licensing study guide sections on change orders and contract modifications
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