# Allowances



## southernyankee (Feb 21, 2011)

Do you include allowances in the contract; for example tile, a vanity, faucet etc?
This applies to an addition or finishing an attic?


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## griz (Nov 26, 2009)

Yes include allowances in the contract.

They are presented at signing and all parties acknowledge they are
aware of them. Eliminates confusion & arguments down the road.


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## EricBrancard (Jun 8, 2012)

Also include how and when allowance credit and debits are dealt with. I deal with them at closing/project completion. And remaining balance is credited back to the customer and any overage is due to me. If there are items that could exceed allowances by double or triple the amount, you may want to write it in that those need to be settled at the time of purchase so you are not holding the bag the entire time.


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## Golden view (Feb 16, 2012)

Always do allowances. The contract even has examples of how they play out, because they are often a point of confusion, as simple as it is. Even with this, my last project the owners said, "it looks like you didn't budget enough for light fixtures, but we'll pay it anyway." Good grief, they chose more expensive fixtures than we initially discussed, and it's clear in the contract that they pay if they go over.

As far as adjustments, as with change orders, reduced costs get applied at final payment, increased costs get paid immediately.


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## EthanB (Sep 28, 2011)

I do use allowances for anything that isn't specified in the contract documents, and that means down to the model number for appliances. For me, allowance discrepancies are noted on a change order and overages are paid immediately(like all change orders) and credits are applied to the next bill.


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## 98crewcab (Oct 7, 2013)

like all the rest....I do on every contract. Kind of stumbled on to it by accident when I first started, and held firm to it ever since.


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## kevjob (Aug 14, 2006)

Estimate has allowances in place of model numbers, proposal has model numbers, tile name, size, pattern, cabinets have name, door style, colors granite to be used edge detail how many sinks etc...

If no material has been selected at proposal allowance number is used in place.


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## CarpenterSFO (Dec 12, 2012)

Use allowances. The customer signs a written change order for final finish selections, whether the original proposal or something different. If it's the same, they are agreeing in writing to the proposal, at the proposal price. If it's different, they are agreeing in writing to the new finish, at that finish's price. The change order includes the finish price, the new total project cost, and the revised payment schedule. Once you get in the habit it's a snap.

"In writing" is often by e-mail.


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## TaylorMadeAB (Nov 11, 2014)

On a fixed price contract, how do you guys go about wording changes to allowances in your contract? Specifically when it comes to mark up on those items. I have it in my contract that the difference between the proposed item and the installed item is adjusted on the final invoice, plus my standard markup.
I'm just wondering if you have a good way of wording it, seeing as markup can be a sticky point for some clients.


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## rselectric1 (Sep 20, 2009)

What do you guys use as the "benchmark" for the "right price" when using allowances.

For example, on a kitchen faucet do you use the suggested retail price, what they can get it on line for themselves, etc. I always seem to run into problems with this when reconciling the change orders.

Just a general run down of what you guys do and use as the "standard" on any given item would be helpful.

I'd love to refine this process for my GC jobs.


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## Inner10 (Mar 12, 2009)

I can't say enough good things about allowances.

It completely eliminates the "I thought x was included" when they get the final invoice.


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## EthanB (Sep 28, 2011)

I have allowances noted in Payments section of my contract. Something like this:

Article 3. Payment
Owner shall pay to Contractor $xx,*** for the design, management
and construction of this project. The Price shall be increased above $xx,***
on a dollar for dollar basis :
1. By the dollar amount for the change orders.
2. In the event that design materials are selected that exceed the noted
allowance amount.
a. Allowances
1. Radiator fittings- $400
2. Plumbing subcontractor - $1800

Any specific materials that are called out would also be noted in the Specifications section.

If there is a major change to an allowance where I would need to recalculate the markup then that would also be noted in the above section and replace the "dollar-for-dollar" wording.


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## ohiohomedoctor (Dec 26, 2010)

Allowance for plumbing sub is an interesting concept. I like that.

I dont do allowances. I make them responsible for all what I call commodity items. Eliminates all confusion and makes the last payment simple.

It also keeps my books from artifically inflating.

I allow them to use my discounts when applicable, have my guys deliver when necessary, and often times place the orders.


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## srwcontracting (Dec 11, 2009)

ohiohomedoctor
I allow them to use my discounts when applicable said:


> I do as well,
> but have been feeling lately that I need to charge to deliver items (at least enough to make them want the stores to deliver)


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## TaylorMadeAB (Nov 11, 2014)

Inner10 said:


> I can't say enough good things about allowances.
> 
> 
> 
> It completely eliminates the "I thought x was included" when they get the final invoice.



I definitely agree, but how do you list these allowances on a proposal? 
For example a kitchen has so many options for allowances. Do you list each individual item ( sink, faucet, backsplash tile) or do a lump sum for the whole job? It just seems like a paperwork nightmare to do each individual item. 
And then you run into a customer who knows the cost of the items they pick out, and complain about the markup. I do make them aware of my markup in my contract, but honestly the less they have to see it the better.


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## Inner10 (Mar 12, 2009)

TaylorMadeCon said:


> I definitely agree, but how do you list these allowances on a proposal?
> For example a kitchen has so many options for allowances. Do you list each individual item ( sink, faucet, backsplash tile) or do a lump sum for the whole job? It just seems like a paperwork nightmare to do each individual item.
> And then you run into a customer who knows the cost of the items they pick out, and complain about the markup. I do make them aware of my markup in my contract, but honestly the less they have to see it the better.


Depends on the job, often lump sum.


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## Boarhog (Mar 14, 2009)

Also explain change orders before ever signing any contracts, they are a contractors saving grace with squirrelly homeowners.


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## EthanB (Sep 28, 2011)

TaylorMadeCon said:


> I definitely agree, but how do you list these allowances on a proposal?
> For example a kitchen has so many options for allowances. Do you list each individual item ( sink, faucet, backsplash tile) or do a lump sum for the whole job? It just seems like a paperwork nightmare to do each individual item.
> And then you run into a customer who knows the cost of the items they pick out, and complain about the markup. I do make them aware of my markup in my contract, but honestly the less they have to see it the better.


I list each allowance separately, within reason. On a proposal I would have allowances for big ticket items listed individually but usually won't break out individual plumbing or lighting fixtures. It needs to be clear what is included, if there's any doubt, they won't want to pay for it. On a kitchen or bath I usually only have a few allowances. I can't provide an accurate quote if I don't know what the materials are. 

Markup is tricky. My preference is to allow for an appropriate quality item for the project and then the markup should be pretty accurate. Using lowball allowances will piss off the HO pretty quickly if EVERY item ends up costing more. You might lose some money if they spend a lot more on the allowance items than you expected but, in the end, you're making the same amount in the same amount of time so it's not a big deal. If the new item requires additional labor then it's change order time and you can adjust the markup.


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## TaylorMadeAB (Nov 11, 2014)

EthanB said:


> I list each allowance separately, within reason. On a proposal I would have allowances for big ticket items listed individually but usually won't break out individual plumbing or lighting fixtures. It needs to be clear what is included, if there's any doubt, they won't want to pay for it. On a kitchen or bath I usually only have a few allowances. I can't provide an accurate quote if I don't know what the materials are.
> 
> 
> 
> Markup is tricky. My preference is to allow for an appropriate quality item for the project and then the markup should be pretty accurate. Using lowball allowances will piss off the HO pretty quickly if EVERY item ends up costing more. You might lose some money if they spend a lot more on the allowance items than you expected but, in the end, you're making the same amount in the same amount of time so it's not a big deal. If the new item requires additional labor then it's change order time and you can adjust the markup.



I agree with you on that, even if it's fair it can still seem like you're just asking for more money.
Now if they pick items that are below your allowance amount, do you refund that money on the final invoice?


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## Jaws (Dec 20, 2010)

Our Scopes are broken out by each task, and each room. Every bathroom is basically a mini scope, all applicable trades are listed in it. Under plumbing, if the labor/materials is an allowance, the labor estimate is listed under plumbing. So are fixtures. It would list fixtures needed, and the allowance amount for that room. 

Included in the contract is a Table of Allowances. It lists all allowances under the proper heading. Plumbing would be plumbing for the whole house. Plumbing fixtures is for the whole house. Then on the draw we show where the allowances are at. 

If they use the decorator we refer ( on many jobs we include her fee in the job cost and the client has a certain amount of hours with her, or many pay her themselves) or their own choice of decorator or do it themselves, the allowances are above average, and if they use my suppliers they will keep them at or below them if that is the priority for them. 

We do our payment on allowances the same as Eric said, at the end unless its abnormally high.


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## Jaws (Dec 20, 2010)

ohiohomedoctor said:


> Allowance for plumbing sub is an interesting concept. I like that.
> 
> I dont do allowances. I make them responsible for all what I call commodity items. Eliminates all confusion and makes the last payment simple.
> 
> ...


I like the keeping the books down, but i can see some problems with the rest of it. Especially with out of towners who dont live here. 

I just want them to pick it out at my supplier and leave. I schedule everything from there, no early delivery, no late delivery, if there is a scratch on the fridge i call and say fix it and they do immediately.


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## EthanB (Sep 28, 2011)

TaylorMadeCon said:


> Now if they pick items that are below your allowance amount, do you refund that money on the final invoice?


Yes


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## Easy Gibson (Dec 3, 2010)

Ethan, you list out sub allowances? That's wild. I never would have thought of that.

My contracts are:

$Giant cost of whole job number

which includes the following allowances:

Sink - $3.50
Faucet - $3.50



What's your wording for explaining your markup on your plumber's $1800?


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## slowsol (Aug 27, 2005)

I only ever list allowances for material items that cannot be determined or specified at bid time. Never labor. And neve subcontractor labor.


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## Jaws (Dec 20, 2010)

Easy Gibson said:


> Ethan, you list out sub allowances? That's wild. I never would have thought of that.
> 
> My contracts are:
> 
> ...


I rarely use labor allowances on a fixed bid, but i have in the past. I dont explain my mark up at all on fixed costs. Cost is 57,200, and the table of allowances will show the allowances in that number. The labor bill is 1800, i show them the plumbers invoice. I marked up the 1800 in my bid. If it is 900 or 2800, my mark up is the same. If it is over all the time your rep will suffer. 

Doesnt matter whether its an allowance or unforseen conditions, on a remodel i am not risking what behind the walls. I make good assessments and let them know what i think it should be around. 

On unforeseen conditions the extras are generally marked up. Allowance, only the original "1800"


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## Jaws (Dec 20, 2010)

slowsol said:


> I only ever list allowances for material items that cannot be determined or specified at bid time. Never labor. And neve subcontractor labor.


So on a remodel, you use unforseen conditions for your MEPs or just risk it?


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## TaylorMadeAB (Nov 11, 2014)

So if the customer comes in under the allowances, you return them money, minus your markup cost on the allowance items?


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## Jaws (Dec 20, 2010)

TaylorMadeCon said:


> So if the customer comes in under the allowances, you return them money, minus your markup cost on the allowance items?


Yes. Its credited to final bill. 

The final draw is is 18,900

Plumbing Fixtures allowance is 800, they spent 700.

Electrical is 750 and they spent 900. 

Final bill is 18,950. 

If the plumbing fixtures are 700, and electical 600, 

The final bill is 18,650.


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## slowsol (Aug 27, 2005)

Jaws said:


> So on a remodel, you use unforseen conditions for your MEPs or just risk it?


I outline how far I am taking the scope of for every MEP trade. 

Then yes, if the work goes beyond that then that is an unforeseen condition. 

I don't want to have fights over them thinking I underestimated the MEP trades with my allowances. Also, I don't want them getting seperate bids because they think my sub is too high and then wanting me to use their sub because it's below the allowance and my guy is over. 

Allowances are a tricky deal. Too many allowances and it looks like you don't know how to estimate and you may be taking away the confidence of the owner in a final price. 

If you just carry fat allowances, you could lose the bid over it. I'd rather clarify, spell out what I have in the scope in the SOW, or exclude items.


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## EthanB (Sep 28, 2011)

Easy Gibson said:


> Ethan, you list out sub allowances? That's wild. I never would have thought of that.
> 
> What's your wording for explaining your markup on your plumber's $1800?


I don't do it all the time, the contract I had in front of me happened to have it so that's what I shared. Typically, I will only use a sub allowance if it's under $500 or it's all hidden or a small job with a long drive. I will send my sub a picture, if it helps, and ask them to give me a ballpark. I don't want to waste their time on small stuff.

That particular job involved steam work and potential plumbing replacement in a OLD house. There was no way to get an estimate from my plumber that would have lasted longer than the time it took to open the wall.

As Jaws said, my markup is on the allowance amount and is part of my fixed bid. There's no explanation.



TaylorMadeCon said:


> So if the customer comes in under the allowances, you return them money, minus your markup cost on the allowance items?


I provide a copy of the subs invoice and refund them the full difference. My markup is in the fixed price. Technically, I don't refund them. The next payment is adjusted accordingly.


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## Easy Gibson (Dec 3, 2010)

True. Makes sense in that light.


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## ohiohomedoctor (Dec 26, 2010)

Jaws said:


> I like the keeping the books down, but i can see some problems with the rest of it. Especially with out of towners who dont live here.
> 
> I just want them to pick it out at my supplier and leave. I schedule everything from there, no early delivery, no late delivery, if there is a scratch on the fridge i call and say fix it and they do immediately.


Almost all of my clients live in the house we are working on.

I do just like you except they leave their credit card info at the supply house. Runs through my account and I get credit without paying for it. 

We use an appliance company with an extensive showroom. The guy is amazing. He offers a kick back for every sale which I always return behind his back to the client. Hand a rich guy $125 he didnt know he had coming and you have a best friend for life..


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## Jaws (Dec 20, 2010)

slowsol said:


> I outline how far I am taking the scope of for every MEP trade.
> 
> Then yes, if the work goes beyond that then that is an unforeseen condition.
> 
> ...


Agreed, primarily. We have only used labor allowances twice. Worked well both tifmes though. So does unforseen conditions.


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## Jaws (Dec 20, 2010)

ohiohomedoctor said:


> Almost all of my clients live in the house we are working on.
> 
> I do just like you except they leave their credit card info at the supply house. Runs through my account and I get credit without paying for it.
> 
> We use an appliance company with an extensive showroom. The guy is amazing. He offers a kick back for every sale which I always return behind his back to the client. Hand a rich guy $125 he didnt know he had coming and you have a best friend for life..


The credit card idea is a good one. Ill keep that in mind.


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## ohiohomedoctor (Dec 26, 2010)

I have had the same mep contractors since I started. I know how much they are going to charge. If I dont, I get them involved before the final price is delivered.

I agree that allowances could easily look like incompetence.


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## Jaws (Dec 20, 2010)

ohiohomedoctor said:


> I have had the same mep contractors since I started. I know how much they are going to charge. If I dont, I get them involved before the final price is delivered.
> 
> I agree that allowances could easily look like incompetence.


Kudos for keeping the same subs :thumbsup:

Its no different than unforseen conditions other than perception. If you cant estimate your rep will show it. If you are 20% off all the time with unforseens you look like a rookie and your rep will show it, as you know. 

One of the two jobs we did it on was a 100 year old farm house, with aluminum wire and clay DWVs. Triple repeat client on major projects. I promise you it was cheaper letting them go by the hour on everything. They bid that there will be a chit load of contigency. Trust is key on all fronts. No difference than CP, it requires trust. 

Generally agree though, for the same reason i like fixed bids for most jobs. Perception of competence.


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## TNTRenovate (Aug 19, 2010)

rselectric1 said:


> What do you guys use as the "benchmark" for the "right price" when using allowances.
> 
> For example, on a kitchen faucet do you use the suggested retail price, what they can get it on line for themselves, etc. I always seem to run into problems with this when reconciling the change orders.
> 
> ...


I gauge my client and their budget. Most of the time I fair the high side. I'd rather give a refund than have them pay more than expected.

With that said there are rarely ever surprises. If they have ever gone over the allowance we have gone over it ad nauseam.


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