• (Edited )

Hi Kristen,

Pretty sure you're referencing two different types of calculations.  Page 415 in the AHPP has to do with targeted profit margin for billable work by an employee, -- so the AHPP is not suggesting that this applies to the way a contractor's overhead and profit is calculated from total construction cost.

On AHPP 415, the point is to come up with a number -- an hourly billing rate for an employee -- that when, after you pay for salary and overhead, a profit of 20% (in the example) still remains.

The 10% OH&P that the contractor gets paid is simply 10% of the total construction cost.

• Hi Kurt, thanks for your comment. Yes, they are two different types of calculations but it occurred to me that maybe the basic premise - how do you make sure a certain % of profit is achieved, whether for a firm or for a GC - is the same. I'm kind of wondering if NCARB has any kind of official stance on this. If we don't hear from them, I'll assume as you do, that I should calculate the two forms of profit differently. Thanks again -

• (Edited )

What is the "PjM slide show"?  Can you post the question you're referencing?

In any case, this won't ultimately be an NCARB preference -- it's really just arithmetic, but I'm not yet clear about the exact nature of your confusion.

• Hi Kurt, my question relates to the screenshot shown here from the ARE 5.0 Test Prep Video Series, for PjM. As to the math: I understand how it's calculated below as 110% of construction cost and have no issues with that. It's just that when we calculate profit for a firm as opposed to construction, we would work backwards from the final number to get a given % of the final amount, which yields different numbers. I don't really see why we'd use different approaches. Anyway I'll let this drop - I will just follow the method shown here if it comes up on the exam.

Thanks, Kirsten

• Hi Kirsten,

This question has come up once before.  Rather than paraphrasing, I'll redirect you to Nick's response here. Hope that helps!

• (Edited )

Kirsten -- I'm not giving up on you yet  ;-)    (Edit: sorry, spelled your name wrong).

Thanks for posting that graphic. BTW -- here's something interesting -- take a look at the question as posted above -- now look at the question the ARE5.0 Handbook version of the "same" question -- the Youtube version says construction documents phase, while the Handbook says construction phase.  I don't think the Youtube version actually makes any sense.

The official handbook was updated after that video was posted, so we need to assume that the current handbook question is correct, and that the question means construction phase.

Anyway, I think you know how to work the numbers, you're just looking at the examples in the wrong contextual framework.

The example for the firm is an internal projection for profit goal -- i.e. -- planning...."For us to make a profit of 20% on work billed hourly, then we need to charge X dollars per hour for any work that Employee Y performs."  This is profit planning.  In a sense, it is a plan to ensure the profitability of any hourly billable work that gets performed (and gets billed).  (And paid!).

The other example is happening under the terms of an already agreed-upon contract.  The time for targeting profit is over.  It's now a contract.  And, under that contract, the contractor has already agreed that he accepts the level of profitability at an OH&P number of 10% of construction costs.  In house at the contractors office, his internal calculations for targeted profitability were already projected and calculated, and he is comfortable under the terms of the contract.

Similarly - you can also think of this in terms of what happens if additional work needs to be performed by the Architect during construction.  Under contract, the Architect adheres to contract terms -- which might, like the Contractor, be some percentage of construction costs.

• Thanks to you both for your answers Kurt and Michelle- this definitely help explain the underlying logic.