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Question DetailsAsked on 1/15/2013

Should profit and overhead be calculated as a % of the sub-total of trades, or as a % of the sub-total of trades PLUS general conditions?

Our contractor appears to have calculated his profit and overhead differently on different change orders: calculating his profit and overhead as a straight percentage of the sub-total of trades (ex.: $100 x 15% = $15) and another time calculating his profit and overhead as a percentage of the sub-total of trades PLUS the general conditions fee (ex.: $100 + 5%(gen cond) = $105 x 15% = $15.75). Since he has done it both ways it seems that one of these is incorrect. What is the norm? Thanks in advance.

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I don't know if there is anything common in that sense but he should be consistent. Ask him why he didn't calculate it the same as before. I'm assuming he has the extra fee as a deterent to make changes once the project is started but that isn't very common, at least around here. He could also be trying to make up for shortfalls in his budget without admitting a mistake. Most contractors are going to add all costs they pay for the job and add a set percentage to mark-up (generally between 15-25%). This covers his operating expenses as a businessperson and profit. He may be setting aside a charge to add in the end rather than lumping it with the others. The description of the fee is a little vague. If you are happy with him otherwise ask for an explanation. If not, refuse to pay the extra because it was not a disclosed charge and he may be trying to slide in an extra few bucks at the end. Communicate with your contractor and come to an agreement. It'll be a lot less costly in the long run if you both can agree.

Todd Shell
Todd's Home Services
San Antonio, TX

Answered 6 years ago by Todd's Home Services




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