# Allowance Items in Contract



## orson (Nov 23, 2007)

Here's a pretty standard Allowance clause straight out of the Contractor's Legal Kit:

*3. ADDITIONAL PAYMENTS FOR ALLOWANCE WORK AND RELATED CREDITS:* Payment for work designated in the Agreement as ALLOWANCE work has been initially factored into the Lump Sum Price and Payment Schedule set forth in this Agreement. If the final amount of the ALLOWANCE work exceeds the line item ALLOWANCE amount in the Agreement, the difference between the final amount and the line item ALLOWANCE amount stated in the Agreement will be treated as Additional Work and is subject to Contractor’s profit and overhead at the rate of ____%. 


If the final amount of the ALLOWANCE work is less than the ALLOWANCE line item amount listed in the Agreement, a credit will be issued to Owner after all billings related to this particular line item ALLOWANCE work have been received by Contractor. This credit will be applied toward the final payment owing under the Agreement. Contractor profit and overhead and any supervisory labor will not be credited back to Owner for ALLOWANCE work.


Do you guys get squeamish at all about putting your markup in this clause? Are you willing to reveal your markup to your clients and potentially your competitors? Do you put a different markup amount in this clause than your usual markup? Or do you just put your normal markup in and justify it to the customer as needed?


----------



## Mike Finley (Apr 28, 2004)

I just don't do allowances. Can't stand them, they are nothing but trouble.


----------



## rbsremodeling (Nov 12, 2007)

You should not put the mark clause in there

If the allowance item is substantially highrt than your allowance, make it up on the labor mark.

Your allowances should be generous amounts. If they choose something lower then the difference is given back on the cost difference not markup allowance amount, if the allowance item is substantially higher make it up on the labor mark up on the allowance item


----------



## Ed the Roofer (Dec 12, 2006)

I just Bumped the thread regarding Escalation Clauses and Materials Allowances up to the top, due to this thread.

Good and timely information.

I thank you for sharing that clause.

Ed

edit:
Adding a link to the Escalation Clause Thread.

http://www.contractortalk.com/showthread.php?t=36195


----------



## BKFranks (Feb 19, 2008)

What's wrong with combining your overhead and profit into one percentage, say 20%. The client doesn't know how much is overhead and how much is profit. Why not a line with something like:"All Allowance costs includes 20% overhead and profit."


----------



## Double-A (Jul 3, 2006)

BKFranks said:


> What's wrong with combining your overhead and profit into one percentage, say 20%. The client doesn't know how much is overhead and how much is profit. Why not a line with something like:"All Allowance costs includes 20% overhead and profit."


Um, that "includes 20% overhead and profit" statement is clear as mud. " It's also grammatically incorrect. The plural "costs" require a singular "include". 

Why are you worrying with profit and overhead on allowance items anyway? Unless they effectively double, then your overhead and profit are not going to be reduced by an overage in the allowances section.

I suggest you treat the overhead and profit on expected allowances as an overhead item. If allowance are required on almost every job you do then you can research your historical percentages of dollars sold, by project type, that were allocated to allowances. Once you know that, put that in your base price and stop there. Don't explain it, don't worry with it. Just put it in and treat allowance overages as just that, an overage of the amount stated on the contract, and therefore subject to additional costs directly to the client.

By trying to single these items out and placing them in the contract, you do nothing but add lines and discussion items to any negotiation that takes place before, during or after your work is done. Why would you want the headache?


----------



## orson (Nov 23, 2007)

Double-A said:


> Why are you worrying with profit and overhead on allowance items anyway? Unless they effectively double, then your overhead and profit are not going to be reduced by an overage in the allowances section.
> 
> I suggest you treat the overhead and profit on expected allowances as an overhead item. If allowance are required on almost every job you do then you can research your historical percentages of dollars sold, by project type, that were allocated to allowances. Once you know that, put that in your base price and stop there. Don't explain it, don't worry with it. Just put it in and treat allowance overages as just that, an overage of the amount stated on the contract, and therefore subject to additional costs directly to the client.
> 
> By trying to single these items out and placing them in the contract, you do nothing but add lines and discussion items to any negotiation that takes place before, during or after your work is done. Why would you want the headache?


This is along precisely the same lines as I was thinking, however, every bit of prewritten construction contract language I have purchased includes this type of clause and I was beginning to be led astray. Thank You folks.


----------



## Mike Finley (Apr 28, 2004)

Good points Double A as usual.


----------



## orson (Nov 23, 2007)

Mike, 

How do you avoid allowance items altogether? Do you put allowances in your estimates and then lock down all selections before the contract?


----------



## Mike Finley (Apr 28, 2004)

What I do might not apply to everyone, since I only do one thing I am able to get most customers to spec out most everything on the first visit. Only on the higher end and big, big jobs do I run into more issues, but even on those you would be suprised how much stuff I can get spec in about 15 minutes. You only have to say "We can always change this later..." and 90% of them won't change anything later.


----------



## ultimatetouch (May 27, 2006)

Heres what I do. You guys may think I am a di**. It works for me.

I dont have a clause in the agreement. I just type up an allowance schedule and then It specifies the variables (toilet cabinets, sink, etc.). This goes with the agreement of course.

I tell the HO that allowances are placed on the variables or things that vary greatly in price and they are listed below. I then tell them if they meet the allowances great if not there are no credits. I tally up all allowances and then they either issue me a check for the difference or nothing changes in the agreement. Credits are more trouble then there worth.

By the way dont show a mark up on allowances that crazy anyone would get pissed about that. No body wants to be nickel and dimed. Just burry some addional cash in the material or labor some where. I rearly even get asked about the reciepts or anything like that.


----------

