perform additional work under a "cost plus 10 per cent" arrangement. The cost in such cases shall be the estimate of the board (or of the officer in charge in changes of less than $500), arrived at after conferring with the contractor and hearing such statements as he desires to submit. Whenever practicable, the estimate should be made before the work is undertaken, and in any event as soon thereafter as circumstances permit.

16-103. Items of cost which may be included in estimate. In addition to the direct labor and material involved in a change, there are other elements whose inclusion as items of cost depends upon the conditions applicable to the change and hence becomes a matter of judgment for the consideration of the board and of the reviewing and accounting officers. As a basic principle, the additional cost or saving involved in a change should be the estimated actual increased or decreased cost to the contractor as a result of such change (as prescribed in the preceding paragraph), and the application of this basic principle to items will assist the board in arriving at its conclusions and recommendations. Another basic consideration is the responsibility for the change; in cases where changes are made for the convenience of the contractor, it is quite proper to disallow certain items of general expense which would be allowable were the change made at the instance of the Government. There are set forth below certain items to be considered in determining compensation for changes; under such of these items as can, in the judgment of the board, be allowed, an attempt should be made to estimate the change in expense to the contractor by reason of the change in work.

(1) Estimated direct labor and material for both temporary and permanent construction, exclusive of plant; proper allowance should, however, be made for the salvage value of temporary work.

(2) Rental of plant.-"Plant" is defined as large equipment or devices ordinarily moved from place to place, and available upon completion of the work for use at other points. Typical examples are: Derricks, engines, boilers, compressors, concrete mixers, pumps, hoists, power-driven tools, motors, cars, pile drivers. Where the plant used on an additive change in the work would not otherwise have been required, or where it would otherwise have been idle and available for employment elsewhere, due consideration shall be taken of the added cost entailed upon the contractor by its use. Where, however, the cost of the plant to the contractor is not modi

fied by reason of the contract change under consideration, plant rental shall not be included as an item of cost. When the plant involved is owned by the contractor, the following items of expense may properly be considered: Average annual depreciation charge, based on the expected economical life of the equipment; shop repairs; field repairs; storage and incidentals; insurance; and taxes (except Federal taxes). Where repairs offset depreciation both should not be included as cost. No allowance should be made for interest on the investment, since a profit of 10 per cent is applied in all cases. If the foregoing items are expressed on a yearly basis as a percentage of the total original cost of the equipment, their summation will show the annual cost as a percentage of the total cost, and rental values per month or other period can readily be determined. The allowable monthly rental, for instance, should be determined by dividing the annual cost by 12. By the utilization of equipment on additive changes, the ratio of idle time to working time is accordingly decreased, and it is therefore not proper in such cases that the cost of changes should bear a rental rate which is augmented to cover the idle time of the equipment. Where the plant is rented, the proper allowance is the price which the contractor actually pays, provided it is a fair rental as determined by the value of the equipment. In such case, however, the board must satisfy itself as to the necessity for the use of rented equipment, especially when there is also on the work similar equipment owned by the contractor. For general information with respect to the expected economical life of various types of equipment, reference may be had to Gillette's "Handbook of Construction Cost," 1922, page 133, or to page 1289 of volume 85 of Engineering News-Record, November 30, 1920the data in both cases having been originally prepared by the Associated General Contractors. In citing the above sources of information, however, it is not the bureau's intention to exclude consideration of other sources, or the judgment, based on experience, of members of boards.

(3) Contractor's field overhead, including pay of resident engineers, superintendents, timekeepers, clerks, watchmen, and other employees of the contractor's field office at the site, prorated according to the magnitude of the work involved in the change. Care shall be taken that ordinary field overhead expense be not made a direct charge under productive labor in cases where this field overhead expense is necessary for the conduct of the contractor's business on

the unchanged portion of the contract. In general, the field overhead expense should be determined over a relatively long period as a percentage of the direct labor, and so applied to the direct labor determined for the change. Where conditions render an exception to this general rule advisable and equitable, such conditions should be stated in the board's report for the information and consideration of the reviewing officers.

(4) Necessary expenses of the contractor's local office at the site of the work, as for telegraph and telephone service, expressage, postage, stationery, etc., prorated according to the magnitude of the work involved in the change. This item can, after determination, be combined with (3) and applied to estimates as a field overhead percentage on direct labor.

(5) Engineering and drafting expenses incurred by the contractor in connection with the preparation of drawings pertaining solely to the additional work involved, in case such drawings are required by the Government; such cost to include the cost of prints. Where this item applies, it should be entered as a direct charge, but should carry no overhead; care shall be taken that general drafting expense is excluded from overhead.

(6) Cost of liability insurance, as required by law, to protect the workmen, the public, and the contractor in case of damages arising from possible injury or loss incidental to the work. The contractor should be required to furnish satisfactory proof of the actual liability rate which the law prescribes for the trades involved. This should be established as a percentage of the estimated pay-roll costs. No overhead shall be applied on this item.

(7) Such other items of direct expense, not specifically excluded hereinafter, as may be consistent with legal restrictions and as may be approved as representing elements in the actual cost of the work.

(8) Main office overhead.-Overhead expenses of the contractor's principal or home office may be included only when these costs are affected by the change, and then only when the contractor furnishes to the board an authenticated certificate containing such information as to his total business transacted and the total expense of his home office as may be necessary to establish the proper ratio between the two items, and containing also such details of his home office expense as may be necessary to determine the propriety of its inclusion. The certificate should show the total business transacted by the contractor

during the current, preceding, or other comparable year, together with the total expense of his home office for the same period.

To the cost, as determined in accordance with the foregoing items, there shall be added a profit of 10 per cent.

The following may be accepted as items of cost, but no percentage of profit shall be applied thereto:

(9) The cost of bond premium, not to exceed 1 per cent of the total cost of the change, provided such premium is variable with changes in the contract price. The contractor should be required to establish this cost to the satisfaction of the board or the officer in charge, as the case may be.

(10) The cost of local transportation, electric power, water, heat, light, or other similar services, and also labor, plant, or material furnished by the Government for the convenience of the contractor, prorated according to the magnitude of the work involved in the change.

16-104. The following shall not be included as items of cost:

(1) The cost of any material furnished by the Government (i. e., charged directly to the appropriation and not paid for by the contractor), or any profit thereon, unless the contract provides otherwise.

(2) Federal taxes of every description.

(3) Interest on deferred payments, or interest on capital. (4) Unliquidated damages of any description.

(5) Legal expenses, or expenses involved in presenting claims against the Government.

(6) Traveling and other similar expenses of company officials and central office employees may be considered only as a part of the main office expense; they are not to be allowed as direct expense, even when travel is performed incidentally to the change in question.

16-105. Application of profit percentage when subcontractor performs work. The foregoing rules for determining costs of changes are based upon the assumption that the work is to be performed by the contractor's organization and not by a subcontractor. Where field work is performed by a subcontractor, the question as to whether or not 10 per cent profit should be allowed to both subcontractor and general contractor becomes a matter of judgment, to be carefully considered by the board. If the work is of a nature

which renders it practicable of performance by the general contractor, only one profit of 10 per cent should be allowed, notwithstanding the fact that the general contractor may desire to sublet it for his own convenience. If the work is of a kind customarily sublet by general contractors, such as, for example, plumbing or electric wiring in a building, then the usual 10 per cent profit may be allowed subcontractor, and the resulting sum shall be treated as a material voucher carrying 10 per cent profit for the general contractor, but not carrying the percentage adjustment made to the general contractor's labor roll for field or office overhead expenses.

16-106. Time extensions resulting from changes. The question of time extension involved by reason of a change in contract should receive the same careful consideration and judgment as the estimate of cost. In the interests of both contracting parties, the extension allowed should be equitably adjusted to the changed volume, character and conditions of work. It is sometimes more difficult to estimate the change in time than the change in cost, and where any doubt exists, or where any controversy is involved, the board should furnish a complete detailed analysis of conditions affecting the situation, so that, in the event that claims for extension of time are subsequently submitted by the contractor, the matter may be given further study.

16-107. Contractor to be allowed hearing before board. The contractor should be notified as to the proposed date of the meeting of the board, and should be permitted to be present at the meeting and to submit such oral or written information and statements as he desires. The board should maintain an impartial and unbiased position in all dealings with the contractor.

16-108. Preparation of board's report. After hearing the contractor's statement and fully considering the issues involved, the board should prepare its estimate of the cost of the contract change in question, which estimate should be arranged according to the items of cost shown hereinbefore, the labor and the material costs being apportioned to the several phases of the work and presented in comprehensive detail; and also its estimate of the proper extension of time, if any, involved by the change in contract. In all cases where items of cost and time involve questions of judgment, full discussion of the basic reasons on which the board has founded its opinion shall be included for review by the officer in charge, the