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Change Order Job Site Cost Formulas

Friday, March 03, 2006 05:24 pm

Change Order Job Site Cost Formulas

When a contract modification expands the scope of work, one of a contractor's cost elements is job site expense, also known as general conditions or field costs. The treatment of this cost is sometimes inconsistent and confusing. Project owners' representatives are not always sure whether it is a direct or indirect cost.

Contractors, on the other hand, would like to have it both ways. When a contract modification does not call for an extension of the performance period, contractors would prefer to treat job site costs as indirect, a percentage mark-up on the direct cost of the change. When a contract calls for an extension of time, contractors would prefer to assign a per diem rate to field expenses, essentially treating it as a direct cost of the change.

On federal contracts, the Federal Acquisition Regulation frowns on this inconsistent approach. Job site costs can be treated as either direct or indirect. FAR 31.105 (d) (3). But a contractor must be consistent in its accounting practices and must group indirect costs in a logical manner. FAR 31.203 (b).

The federal boards of contract appeals have adopted, of course, the FAR mandate. While a contractor can treat job site expenses as a direct per diem cost or an indirect percentage mark-up on direct change order costs, the contractor must be consistent regardless of whether or not the contract modification calls for a time extension. Appeal of M. A. Mortenson Company, ASBCA No. 40750 (March 30, 1998); CCM May 1998, p. 5.

Even [...]

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