By Bruce Jervis
Jobsite overhead, sometimes called field office overhead, is not really “overhead” at all. It is a direct cost of performing a single construction contract at a specific site. Nonetheless, the term “overhead” is widely used and the Federal Acquisition Regulations allow government contractors to treat it as an indirect, percentage-of-contract cost component when pricing change orders.
Contractors are also allowed to treat jobsite expenses as a direct, per diem cost when pricing change orders. This creates a potential problem. As one contractor recently learned, there must be consistency in accounting practices.
A contractor cannot price one change order proposal treating jobsite expenses as a direct, per diem cost and then, on the same contract, price another change order proposal treating job site expenses as an indirect, percentage-of-contract cost. Even if the per diem rate was disadvantageous and inadequate to cover actual job site expenses, the contractor was stuck with its initial cost structure.
This raises some interesting questions. Should jobsite expenses always be priced as a percentage of contract cost? Is this the more prudent, best practice? Or, if carefully itemized and calculated, is a per diem rate the more accurate way to price these expenses? Your opinion is welcomed.