Business Practices, Estimating, and Contract Administration
This section covers business practices, estimating, and contract administration: labor and material takeoff, burden, overhead, profit, change orders, permits, insurance, lien rights, and closeout. The exam tests whether you can price work without losing money and document changes.
Estimating
Estimate labor by task and productivity, then add labor burden (taxes, insurance, benefits, tools, supervision). Material takeoff includes pipe, duct, fittings, refrigerant, controls, and consumables. Equipment costs include freight, rigging, startup, and warranty. Overhead covers office, vehicles, insurance, and administration; profit is separate. Markup is applied to cost; margin is profit divided by selling price. They are not the same.
Contracts and changes
A clear scope lists inclusions and exclusions, schedule, payment terms, retainage, warranty, and who pulls permits. Written change orders protect both parties when the owner adds work or concealed conditions appear. In Massachusetts, residential contracting may trigger registration or licensing requirements; commercial public work may require prevailing wage and bonding. Keep submittals, RFIs, inspection cards, and signed change orders.
Worked example
A job costs $8,000 in labor, material, and equipment. The contractor wants 15% overhead and 10% profit as markups. Price = 8,000 x 1.15 x 1.10 = $10,120. If the contractor instead targets a 20% margin, price = cost / (1 - 0.20) = $10,000. The first method yields a 20.9% margin; the second yields exactly 20%. Mixing markup and margin can underprice a bid.
Traps
Forgetting permits, crane, or disposal; using gross labor rate without burden; treating overhead as profit; doing extra work on a handshake; and omitting exclusions for existing conditions.