Fit-Out Bid, Unpriced Change Order, and the Alabama License Question
You are bidding a 4,200 sq ft commercial tenant fit-out with a 90-day schedule. Your estimate: 320 journeyman hours at a burdened cost of $46.00/hr, materials at $21,400 cost, a $850 permit fee you pass through at cost, and a $3,600 fire alarm sub quote. Company overhead runs 18% of sales and you target 10% net profit. You win the job at your price and sign. Two weeks in, the GC verbally directs 40 extra hours and $2,900 of additional material for added lighting and a relocated panel, promising to 'paper it later.' The job then sits idle for three weeks on the GC's schedule, burning 60 hours of your crew's standby time. At the end of the month the GC's pay application omits your invoice and asks you to start the next building before the permit is issued.
1. Compute the contract price for the original scope using the cost-recovery method.
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Direct cost
| Item | Amount |
|---|---|
| Labor: 320 hr x $46.00 | $14,720 |
| Materials (cost) | $21,400 |
| Permit (pass-through) | $850 |
| Fire alarm sub | $3,600 |
| Total direct cost | $40,570 |
Markup for overhead and profit. Overhead is 18% of sales and target profit is 10% of sales, so direct cost is 72% of the selling price:
Selling price = $40,570 / (1 - 0.18 - 0.10) = $40,570 / 0.72 = $56,347, round to $56,350
Sanity check the answer two ways. First, $56,350 x 0.72 = $40,572, so the math holds. Second, the gross margin is $15,780, which is 28% of sales, exactly the overhead-plus-profit target. If you had instead added 28% on top of cost ($40,570 x 1.28 = $51,930), you would have left roughly $4,400 on the table - that is the classic markup-versus-margin error, and it is the single most common estimating mistake on this exam.
2. Price the change order and the standby time, and explain why cost-plus-a-percentage is the wrong response.
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Change order at the same structure
- 40 hr x $46.00 = $1,840
- Materials at cost = $2,900
- Direct cost = $4,740
- Price = $4,740 / 0.72 = $6,583, round to $6,585
Why not cost plus a flat percentage. The $4,740 is a direct cost, not a sale. Adding 10% for 'profit' produces $5,214, which covers neither the 18% overhead already being consumed by the extra supervision, mobilization, and clerical time, nor the 10% profit. The divisor method puts each dollar of direct cost back into the same relationship the original bid assumed. Materials you buy and resell also carry handling and warranty exposure that a straight pass-through ignores.
Standby time. 60 hr x $46.00 = $2,760 direct, which at the same divisor is $3,833 - but characterize it correctly. Idle labor caused by another party's schedule is a delay cost, not a change in scope:
- Bill it under the delay/standby clause in your contract, or as a documented claim, not as a change order for work performed.
- Recover only the actual cost of the standby if the contract limits delay damages; many subcontracts do, and some waive them entirely. Read your own clause before you send the invoice.
- Note the schedule impact in writing the same day it happens. A three-week delay claimed thirty days later is a dispute, not a notice.
Bundle nothing. Send the CO at $6,585 and the standby as a separate, properly noticed item.
3. The GC directs work without a written change order, withholds payment, and wants you to start work before permit issuance. What does a licensed Alabama electrical contractor do, in order?
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1. Get the change order signed before the work proceeds - and if it already proceeded, document it now. The verbal direction is not authorization to bill. Write it up with the date, the directing person, the scope, the hours, and the price, and send it with a cover letter stating that continued performance is conditional on written approval. Photograph the added work in place and keep the material tickets.
2. Do not start work without a permit. Pulling a permit is the licensed contractor's obligation, and working unpermitted exposes you to failed inspections, a stop-work order, and discipline against your license for something the GC talked you into. Permitting also fixes the record of who did the work and when - which is exactly what you need if the payment dispute escalates. The correct answer to the GC is a written schedule showing permit issuance as a predecessor task.
3. Verify the license and contract chain. In Alabama, electrical contracting requires a license through the Alabama Electrical Contractors Board, and the entity that contracts is the licensed entity - the qualifier must be properly affiliated with it. Do not lend your license to the GC's preferred unlicensed sub, and do not let the GC sign electrical permits in your name. If the project is commercial and over the general contractor licensing threshold, confirm the GC holds the appropriate general contractor license before you sign a subcontract with them.
4. Escalate on paper, then on money. Send a written demand with a deadline for the omitted pay application. Then evaluate stop-work and lien rights - and get the deadline from Alabama counsel immediately, because the notice and filing periods for a mechanic's lien run from the last furnishing of labor or materials and are short. Do not self-help, do not remove installed material, and do not walk off a bonded job without advice.
5. Fix the process, not just this job. Every one of these three problems traces to the same gap: no written authorization before work. Add a one-page change order form and a no-permit-no-start line to your subcontract, and put the standby rate in the contract next time.