Overhead and Profit on Change Orders

by Hamid Sarvi, (M.ASCE), Head of Const. Mgmt. Div.; G. S. Dodson & Associates, Walnut Creek, CA,

Serial Information: Civil Engineering—ASCE, 1992, Vol. 62, Issue 8, Pg. 59-61

Document Type: Feature article

Abstract: Have you ever wondered how many change orders it took to build the Egyptian pyramids or the Great Wall of China? The concepts of overhead, profit, and change orders have been around for many years. But does everyone understand what they mean? Perhaps no other issue so divides owners and contractors. Owners often believe contractors use change orders to collect additional compensation for either a bad bid or a poor performance. Some even argue that a prudent contractor should include a contingency for processing them and even factor for loss of productivity at bid time. While most contractors agree that change orders are unavoidable, few feel they are contractually obligated to include such contingencies. Under a competitive bidding system, any contractor who would do so would not be the low bidder. Earlier this year, to better understand both sides, I informally interviewed eight general engineering contractors (mainly involved in water, wastewater, and transportation projects) and representatives from 17 public agencies on how they handle change orders. Most are located in northern California.

Subject Headings: Contracts | Bids | Change orders | Contractors | Owners |

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