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Make-or-break during production: shedding light on change-orders, rework and contractors margin in construction
journal contributionposted on 2019-01-29, 00:00 authored by P E D Love, Lavagnon A Ika, Dominic Doe Ahiaga-DagbuiDominic Doe Ahiaga-Dagbui, Giorgio Locatelli, Michael C P Sing
A total of 98 construction projects with a combined value of $8.5 billion were examined to explore the nature and value of rework and change-orders and their influence on a contractor’s margin. Only 65% of projects experienced a cost increase during their construction, though a mean rework cost of 0.39% of the contracted value was incurred, which had a negative impact on the contractor’s overall margin. In addition, the difference between approved client change-orders and those by the contractor for subcontractors was 0.5% of the total costs incurred for the sampled projects, which had an adverse impact on the organisation’s profit. The upshot here is that the contracting organisation underwent a mean loss in profit of 23% per annum over the period of analysis. It is suggested that margin losses might well have been higher as rework was seldom formally documented and reported.