An owner requests a change that will add $35,000 to the contract price and 12 days to the schedule. The contractor's markup on changes is 15% for overhead and profit. What should be the total change order amount?
Correct Answer
C) $40,250
The change order amount should include the direct cost plus the contractor's markup. $35,000 × 1.15 (15% markup) = $40,250. The time extension is typically handled separately from the cost adjustment.
Why This Is the Correct Answer
The correct change order amount must include both the direct cost of the change and the contractor's markup for overhead and profit. The $35,000 represents the direct cost of the change work, but contractors are entitled to add their markup to cover overhead expenses and profit margin. Multiplying $35,000 by 1.15 (which represents 100% of the cost plus 15% markup) gives $40,250. The 12-day schedule extension is handled as a separate contract modification and doesn't affect the monetary calculation.
Why the Other Options Are Wrong
Option A: $47,250
Option C of $47,250 would represent a 35% markup ($35,000 × 1.35), which is significantly higher than the stated 15% markup and would overcharge the owner.
Option B: $35,000
Option A only includes the direct cost of $35,000 without any markup for overhead and profit, which would result in the contractor losing money on the change order since they need to cover their business expenses and earn a reasonable profit.
Memory Technique
Remember 'CAMP' - Cost × (1 + Markup Percentage) = Total. The 'A' reminds you to ADD the markup to 1.00, not just multiply by the markup percentage alone.
Reference Hint
Look up contract administration and change order procedures in Chapter 7 of the Florida Building Contractor Reference Manual, specifically sections on markup calculations and change order pricing.
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