Bid Markup, a Change Order, and a Permit Signed Under Someone Else's Name
A licensed electrical contractor is finishing a bid for a 1,800 sq ft tenant fit-out. Direct costs are 240 journeyman hours at $58/hr burdened, $11,300 in materials, and $1,200 in rented equipment and permit fees. The company applies 20% overhead to direct cost and then 10% profit to the resulting subtotal. The general contractor, who holds the prime contract, says the electrical permit will be pulled under the GC's name and that the electrical rough-in will be done by 'a guy who does electrical on the side'; the licensed contractor would only do the trim-out and sign the inspection card. After the bid is submitted, the owner adds six receptacles and two dedicated circuits, which the contractor estimates at 22 hours and $1,450 in material. The owner asks for the change 'at cost, no markup' because the job is already profitable. The contractor has to price the base bid, price the change, and decide whether to accept the GC's permit arrangement.
1. Compute the base bid and the price of the change order using the company's normal overhead and profit structure.
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Direct cost:
- Labor: 240 hours × $58/hr = $13,920
- Materials: $11,300
- Equipment and permits: $1,200
- Total direct cost: $13,920 + $11,300 + $1,200 = $26,420
Overhead at 20% of direct cost: $26,420 × 0.20 = $5,284 Subtotal: $31,704 Profit at 10% of the subtotal: $3,170.40 Base bid: $34,874.40, rounded to $34,875 in the proposal.
Change order:
- Labor: 22 hours × $58/hr = $1,276
- Material: $1,450
- Direct cost: $2,726
- With overhead: $2,726 × 1.20 = $3,271.20
- With profit: $3,271.20 × 1.10 = $3,598.32
So the change order should be priced at about $3,598, not $2,726. Show the arithmetic in the change order itself so the owner can see the difference between the direct cost and the price.
2. The GC wants the permit in the GC's name, the rough-in done by an unlicensed individual, and your signature on the inspection card. What are the issues and what should the contractor do?
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Two separate problems are being bundled together.
First, permit and supervision. Licensing statutes generally require the electrical permit to be obtained by the licensed electrical contractor that will perform and supervise the electrical work. A general contractor that is not licensed for electrical work cannot properly take out an electrical permit for electrical work it will not supervise.
Second, signing for work you did not perform or supervise. Signing an inspection card or permit for a rough-in installed by someone else is a misrepresentation to the authority having jurisdiction. If the work fails inspection or causes a fire, the license on the record is the contractor's, and the contractor's insurance and bonding will be exposed. Allowing an unlicensed individual to do electrical rough-in can also make the contractor part of an unlicensed-practice violation even if it only performs trim-out.
The correct response is to decline that arrangement. Either contract for the full electrical scope with your own permit and supervision, or walk away. If a licensed subcontractor is used, get a written subcontract, verify the subcontractor's license and insurance, and inspect the rough-in before it is covered. Confirm the local licensing statute and permit rules rather than relying on the GC's description of them.
3. The owner wants the added circuits at direct cost. Explain the financial problem and how to respond.
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At direct cost, the $2,726 leaves the company paying overhead on the extra work with no recovery and no profit. Overhead at 20% of $2,726 is $545.20, and the profit at the normal 10% is $327.12. The company would be about $872 worse off than if it had not taken the change, before counting any inefficiency from a small, disruptive add-on.
The distinction to explain to the owner is markup versus margin. Adding 10% to a cost number is a markup on cost. A 10% margin means profit is 10% of the selling price, so the price must be cost ÷ (1 − 0.10); the same cost yields a higher price under a margin calculation. The company's stated method in this bid is markup, so the $3,598 figure follows the bid's own structure and is not an opportunistic add-on.
Respond in business terms: issue a written change order with the price and schedule impact before any work, have it signed, and do not start the added circuits on a verbal promise. A change is outside the original contract scope, and unpaid change work is a common source of disputes and lien claims.