Tuesday, February 15, 2000

How change orders add to construction costs

The Cincinnati Enquirer

        On big construction jobs, change orders are as common as steel and concrete.

        Change orders — paperwork that authorizes an increase in scope of an aspect of construction — are one of the most common sources of waste and fraud during a project, experts say.

        An auditor hired to look at change orders at Paul Brown Stadium found that there is not sufficient oversight to properly monitor the change orders, check if they are necessary and determine who is responsible.

        The audit found no evidence of fraud.

        But change orders are being blamed for potential cost increases of between $35 million $45 million to the $287 million project.

        A sample of five change orders examined by auditors from PricewaterhouseCoopers shows that some of the costs should have been disallowed by the contract manager.

        The audit findings include:

        • A $46,230 change that contained a 7.5-percent mark-up for overhead and itemized equipment, including a mixer, saws, scaffold and small tools, totaling $1,780. A por tion of that should have been included in the overhead, resulting in a 5 percent overcharge.

        • A $49,508 change included 20 percent overhead and 10 percent profit. Most contractors charge 15 percent for both overhead and profit. The result was a $7,426 overcharge.

        • A $203,000 change included a percentage for field overhead (the cost of moving operating machinery, large tools, etc., to the site). It is customary that when a field overhead is charged, other overhead costs are not itemized and billed again. This resulted in a 3.7 percent overcharge.


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