Construction Change Orders and Claims Flashcards
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Read the first 6 Construction Change Orders and Claims flashcards as text
Which change order pricing method is most auditable and transparent for a cost-plus construction contract?
Answer: Force account (time and material) with daily records signed by both parties
Force account pricing documents actual labor, material, and equipment costs in real time with joint sign-off, providing the most transparent and verifiable cost basis.
An auditor reviewing a contractor's claim for home office overhead typically applies which industry-recognized formula?
Answer: Eichleay Formula
The Eichleay Formula is the widely accepted method for calculating unabsorbed home office overhead damages during periods of owner-caused delay on construction projects.
Concurrent delay in construction contracting refers to:
Answer: Overlapping delays caused by both the owner and the contractor occurring at the same time
Concurrent delay occurs when owner-caused and contractor-caused delays overlap; courts and contracts typically deny additional compensation to the contractor in true concurrent delay situations.
A 'no damage for delay' clause in a construction contract generally means:
Answer: The contractor is precluded from recovering monetary damages for delay, though exceptions may apply for active interference
No-damage-for-delay clauses bar monetary delay recovery but are often unenforceable when delays result from active owner interference, fraud, or bad faith.
When auditing change orders on a fixed-price contract, an auditor should be particularly alert to:
Answer: Change orders that collectively expand scope beyond the original contract by a large percentage, suggesting scope was underrepresented in the bid
Cumulative change orders that dramatically expand the original scope may indicate an intentionally low bid followed by planned scope recovery through changes, a red flag for bid manipulation.
Which internal control helps ensure that change order markups (overhead and profit) do not exceed the percentages specified in the contract?
Answer: Verification of markup rates against contract-specified limits during change order review
Reviewing claimed overhead and profit markups against the percentages stipulated in the contract prevents contractors from applying unauthorized or excessive markups on change order costs.