Change Order/Credits

[RedBauer]

When a contractor applies for a change order, overhead and profit are applied to their extra. How about when they issue the Owner a credit? Shouldn't the Owner receive the overhead and profit associated with that item as well? Has anyone ever done this, seen it done, or seen it explained in AIA/EJCDC documents?

 

[bimr]

AIA/EJCDC Article 12.01 C.2.e reads:

"e. the amount of credit to be al¬lowed by Contractor to Owner for any change which results in a net de¬crease in cost will be the amount of the actual net decrease in cost plus a deduction in Contractor’s fee by an amount equal to five percent of such net decrease; and"

Most of the time the Contractor will not give you the full cost back on a change. Typically they will the cost without the overhead and profit. There is some justification for this practice since there is some cost and effort in preparing the credit.

 

[jgailla]

In my experience, contractors will typically not deduct overhead and profit from a deductive change order. I have never had a problem with this for the reason bimr states, that the contractor has extra work associated with processing the deductive change order. I have not had an owner complain about it, perhaps because they are happy just to get a deductive change order.
I had one in particular, on a very fast paced design-bid-build project, where I redesigned the drainage system and saved about $200,000. The subcontractor, who I had a pretty good relationship with, called me up complaining about the significant changes and I told them to put a charge on the deductive change order for a reasonable rate and time for repricing. They charged about $500, if I remember correctly, which was pretty fair.

 

[PilebuckEngineer]

It is all in the contract. I am a contractor and you need to remember contractors spread their profit into various bid items. In addition, force account profit on changes dont match what contractors bid. For example, wsdot allows 27% on changes but we might only have bid 10% on the job at the time of bid. So in a credit situation we may only give back the original fee percentage.