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How should we calculate the amount for a deductive change order in the state of Florida?

Good afternoon. We have a small interior project $700k; the owner want to deduct $115k from the original scope of work and add a new product that costs 135k. Question what is the correct formula for this deductive change order or dvise for a different formula. $135-$115k = $20 + O&P(15%) = $23k or $135+O&P(15%)-$115k = $155-$115k = $40.25k The new product will tke 12-14 additional weeks for delivery, pushing final completion of the project. We greatly appreciate your advise.

2 replies

Sep 3, 2019

Deductive change orders can be quite the pain - particularly calculating how they should affect the job price. Before getting too far along - note that I'm not a accounts receivable or credit professional. And, while I'm able to provide legal information that should be helpful here, I'm not actually able to advise you on how you should proceed. Ultimately, that will be up to you and/or your AR or legal department. With that in mind: First, it's important to look to the contract. If the contract discusses how change orders must be calculated, then the contract should be followed. And, it's relatively common for overhead and profit contracts to include guidelines on how to address deductive changes. Gennerally, if a deductive change order and an additive change order are both executed, it might make sense to treat them completely separately. Meaning, deducting the work, materials, and time no longer required from the project's price, then adding the cost of new work, materials, and time may be the most appropriate method moving forward - especially when the work canceled and added are completely unrelated to each other. Of course, note that exactly how to calculate deductive changes, themselves, is another question altogether - and that question is pretty well examined in this resource from SMACNA (beginning on page 20): Guidelines for Change Orders. But, generally, with an overhead and profit contract, note that the price a deductive change order should still keep in mind the overhead associated with that deductive change. It's not always as easy as cutting out a specific chunk from the contract. Rather, there will generally be overhead and labor hours associated with seeing the deductive change through. However, note that this is a very specific and detailed question. So, it might be wise to consult a local expert - potentially a local attorney, accounts receivable expert, or auditor - to advise on how to calculate the change in contract price. They'll be able to look at your contract and specific circumstances and advise on how to proceed.

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Mar 9, 2020

I wanted to follow-up and confirm you’ve been paid on this project matter.

If I can further assist your company with any unpaid invoices, please feel free to call or email. My firm can collect for you even when lien rights have expired or were never pursued.

Mike Ross Miller, Ross & Goldman mross@mrgpartners.com (512)275-6412 Direct https://www.mrgpartners.com/levelset

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