Proper Allowances

Every large project whether it is a fixed fee or gross maximum price will have a few items listed as an allowance. What does this mean? Well it means that the line item is approximate not accurate and expected to be different when finalized. In a GMP the value should flow in and out of the contingency. In a fixed fee / lump sum contract the difference should be rectified in a change order. Allowance change orders should never include contractors fees as the value of the material does not effect the scope.

Allowances should be limited to material as much as possible. Materials especially tile, pluming fixtures and other finishes such as wall paper can have vastly different values.

These two tile, same size, same location same installation, different cost. If the architect decides the warning stripe needs to be one row larger the allowance changes. The change doesn't effect the scope of work and should not be subject to overhead and profit. The install should be on another line item. Now if the tile changes to a drastically different size you may negotiate a difference in labor on the install line. Never let a contractor say a material allowance includes labor, handling or storage.

There are instances where an allowance may include labor and other items. This should be for very specific items subject to unknown conditions usually work related to demolition, excavation and foundation work, like rock removal. This allowance should include all the costs of the removal in a unit price. Any changes in the value should not be subject to contractor fees just like material allowances... if they remove more rock it means they removed less dirt, the scope of excavation size and depth does not change.

Never let an allowance be for something very complex or specific like a custom canopy. Always double check and compare your bids. Some contractors will use lots of low balled allowances to appear cheaper. Spending the time to have accurate plans and very specific specifications in your material schedules means less allowances and more accurate bids but remember allowances are a good way to build flexibility into contract to defuse market pressures such as availability and price hikes especially on finishes.