Can my contractor charge profit and overhead on change orders that give me credit?

Answered by Brett ~ January 26, 2012 ~ No Comments » | Respond to this question

Although our construction budget had a line item for an $8000 metal roof, we instead chose a $2000 shingle roof. Our contractor is still charging us profit and overhead on the $8000 line item, is this fair?

Annie ~ Emo, NY

Brett Kulina

Annie, although your dispute with your contractor seems unfair, it would be impossible for me to judge the legality of the disagreement without reviewing your work agreement and the other contracts you signed with your contractor. In general, profit and overhead is calculated on the bills that are actually paid by a contractor, and not calculated on the initial budget estimates or deleted line items. For example, if your budget has a line item for house painting, which estimates that the painting will cost $10,000, but after change orders the work actually cost $15,000, then you would expect your contractor to charge you profit and overhead on the actual bill of $15,000. Likewise, if your asphalt roof cost $2000, then you should expect to be charged profit and overhead on the $2,000, regardless of the estimated cost of a metal roof.

The details of your signed work agreement would determine how your contractor bills his profit and overhead statements, and work agreements are no more than formal contracts between two parties, which means that the answer to your question should be somewhere in your pile of paper work. I would carefully review all of your work contracts and then sit down with your contractor and solve this problem so that you can keep your construction project rolling along.

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