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Deductive Change Order and Overhead

Deductive Change Order and Overhead

Deductive Change Order and Overhead

We are issuing a deductive change order. And the contractor is not including the overhead and profit in the cost proposal.
Our argument is they should because in the contract, it reads the following:

"For Work to be deleted by Change Order, the reduction of the Contract Sum shall be computed on the basis of one or more of the following: (i) Unit Prices stated in the Contract Documents; (ii) where Unit Prices are not applicable, a lump sum based upon the costs which would have been incurred in performing the deleted portions of the Work as calculated in accordance with Paragraph 6.06, supported by a Cost Proposal as required by Paragraph 6.03. Neither
Contractor nor the Subcontractor shall receive a markup on their respective Lower-Tier Subcontractors
to administer the credit Change Order. 1. When both additions and credits are involved in any one Change Order, Contractor's markup shall be computed on the basis of its direct costs and labor productivity for the net change in the quantity of the Work. For example, if a Change Order adds 14 units on one Drawing and deletes 5 units on another
Drawing, the markup shall be based on the net addition of 9 units. No markup will be allowed if the deductive cost exceeds the additive cost."

Since this is a unit price, we are expecting the costs..as calculated in paragraph 6.06. I am not going to include this paragraph but it has subparagraph A for labor, subparagraph B for Material, and subparagraph C for overhead and profit. Paragraph 6.06 treats overhead and profit as a cost so we believe the overhead and profit should included as part of this deductive change order.

RE: Deductive Change Order and Overhead

Some possible issues:

Is it a unit price contract. If so, are there unit rated for adding and deducting? If so, and then you have an ambiguity written into the contract and case law generally goes against the individual that drafted the contract. If a unit priced contract you have to be very careful when you evaluate the bids to ensure that the 'add' and 'deduct' values are realistic... if they are offering $100 to add an item, and $0.1 to deduct it... these are the terms of the contract. I was involved in one project where this was the case, and I identified the problem to the client, and he ignored the advice. At the end he really got hurt. I didn't tell him, but I was not at all sympathetic.

"When both additions and credits deletions are involved" another possible ambiguity...

"overhead and profit should included as part of this deductive change order" Hopefully in regards to the Contract, these items should be itemised.

It is then a matter of determining if the Change Order evaluation is consistent with the terms of the Contract. Different jurisdictions may treat this differently.

So strange to see the singularity approaching while the entire planet is rapidly turning into a hellscape. -John Coates


RE: Deductive Change Order and Overhead

you need to talk to a lawyer, not a bunch of engineers.

RE: Deductive Change Order and Overhead

A good contract administrator can usually work this out, and even more convoluted problems... if the contract admin cannot, then you need lawyers...

So strange to see the singularity approaching while the entire planet is rapidly turning into a hellscape. -John Coates


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