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GEORGE BUNKERS and GWEN BUNKERS d/b/a GEORGE BUNKERS CONSTRUCTION,
Plaintiffs and Appellants.
v.
GARY JACOBSON and DIANE JACOBSON,

Defendants and Appellees,
And

GEORGE BUNKERS and GWEN BUNKERS d/b/a GEORGE BUNKERS CONSTRUCTION,
Third Party Plaintiffs and Appellants,
v.
NAATJES CONCRETE, INC. and
D.L. JOHNSON and GORDON JOHNSON
d/b/a JOHNSON DRYWALL, Third Party Defendants

Third Party Defendants.

[2002 SD 135]
South Dakota Supreme Court
Appeal from the Circuit Court of
The Second Judicial Circuit
Lincoln County, South Dakota

Hon. Richard Bogue, Judge

TIMOTHY A. CLAUSEN of Klass, Stoick, Mugan, Villone, Phillips, Orzechowski, Clausen & Lapeirre Sioux City, Iowa KRISTI HOLM of Davenport, Evans, Hurwitz & Smith Sioux Falls, South Dakota Attorneys for plaintiffs and appellants and third party plaintiffs and applleants JEFFREY J. KOERSELMAN and GARY P. THIMSEN of Woods, Fuller, Shultz & Smith Sioux Falls, South Dakota Attorneys for defendants and appellees.
Considered on Briefs April 23, 2002
Opinion Filed 11/6/2002

#21965, 22021 TRANDAHL, Circuit Judge
[¶1.] George and Gwen Bunkers, doing business as George Bunkers Construction (Bunkers Construction), appeal the trial court's decision awarding damages in favor of Gary and Diane Jacobson (Jacobson) in a cost-plus contract dispute. By notice of review, Jacobson asserts that the trial court erred in failing to award prejudgment interest on a counterclaim. We affirm in part, reverse in part and remand.
PROCEDURAL HISTORY

[¶ 2.] Bunkers Construction initiated suit against Jacobson for profit and overhead due and owing under a residential construction contract. Jacobson counterclaimed for breach of contract and negligent construction. Bunkers Construction subsequently filed a third party complaint for indemnification and contribution from several subcontractors including Naatjes Concrete, Inc. The Bunkers Construction claim and the Jacobson counterclaim were bifurcated.
[¶ 3.] By agreement of all parties, the Bunkers Construction claim was submitted on stipulated facts. The counterclaim, however, was tried before the court. In its judgment, the trial court dismissed the Bunkers Construction claim in its entirety and awarded $64,834.93 in damages to Jacobson on the counterclaim.
Further, the court found that Bunkers Construction could recover $8,026.68 on its third-party claim against Naatjes Concrete, Inc[1] . The trial court also denied Jacobson's request for prejudgment interest. Bunkers Construction appealed and Jacobson filed a notice of review.
FACTS
[¶4.] This dispute revolves around a contract for the construction of a home in the Prairie Tree Addition of Sioux Falls, South Dakota. In 1991, Jacobson decided to build a new home in Sioux Falls. Bids were solicited with the assistance of Gary Stanley, an architect hired by Jacobson. Eventually, Bunkers Construction was hired to construct the home and the parties entered into a cost-plus contract.[2] George Bunkers is a long-time residential contractor in the Sioux Falls area. The Bunkers lived immediately next door to Jacobson's lot. George Bunkers had his office there and his sole construction trailer was on the Jacobson property.
[¶5.] Pertinent parts of the contract are important in this dispute. The contract provided for compensation to Bunkers Construction as follows:
17. CONTRACT SUM. The Contract Sum shall be the actual cost of all labor, materials, permits and equipment on site and employed in the construction as of the date of payment, plus 3% overhead, 6% profit on the first $300,000.00; 5% profit on any amounts over $300,000.00.
Further, under costs to be reimbursed, the contract defined the "cost of work" as "costs necessarily incurred by the Contractor in the proper performance of the Work."
[¶6.] The contract also allowed the owner, Jacobson, to purchase material as follows:
18. PURCHASE OF MATERIALS – DISCOUNTS, REBATES AND REFUNDS. Owner may at his option purchase directly any of the materials or supplies necessary in the construction of the residence. No percentage mark-up on appliances, electric switch gear, light fixtures, window treatments and carpeting.
[¶7.] Moreover, the contract required Bunkers Construction to build the house according to architectural plans. Specifically, the contract stated:
2. WORK. The Work will be completed in accordance with the Construction Drawings and Plans made by Randall Stanley Architects. . . . The Plans are incorporated in this contract. The Owner will provide Contractor with all architects' drawings and explanations as required to indicate the work to be done. The Contractor will follow these drawings as interpreted by the Architect.
* * *
21. CONTRACT DOCUMENTS. All plans, drawings, specifications, change orders and
other documents prepared by Architect shall become a part of this Contract.
* * *
23. PLANS AND SPECIFICATIONS. Contractor agrees to follow the specifications, plans and drawings and that the work will be successfully executed in accordance with them, without any additional or extra work other than such as is necessarily implied, or to be inferred from the specifications, plans and drawings, upon a fair and liberal construction.
Jacobson never provided any official specifications or drawings. The only drawing available to Bunkers Construction was one marked "Not For Construction."[3]
[¶ 8.] Bunkers Construction began building the house in July 1991 and problems began to surface. During the course of construction, Jacobson purchased certain items for the house. It was the purchase of these items that initiated this dispute. Bunkers Construction claims that, because of the express terms of the contract, it is owed profit and overhead along with reimbursement for the cost of the excise tax on the "owner-purchased" items. Jacobson disputes this.
[¶ 9.] The construction of the home was essentially completed in July 1992. Jacobson claims that Bunkers Construction breached the contract because of defective work performed. The defects can be classified into three main areas: roofing, water problems and drywall. Despite complaints to Bunkers Construction and some attempts by Bunkers to repair these problems, they persisted. Jacobson then hired other contractors to attempt to correct the problems. Jacobson is also asking for prejudgment interest.
ISSUES
[¶10.] Whether Bunkers Construction is entitled to profit and overhead on owner

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