Explaining Allowances in Contracts
To contractors, allowances in contracts may be self-explanatory, but owners often find them confusing. A typical section on allowances may look like this:
Kitchen appliances $25,000
Bathroom fixtures $20,000
What contracts often don’t explain is, what happens when the full value isn’t used? If I only spend $8,000 on the cabinets, do I then get to allocate the $2000.00 to another category? If not, why not?
Who is responsible for buying the materials? Will the checks be made out to the General Contractor?
Is the General Contractor charging a mark-up on materials? Will this include change order items?
Contractors often find that owners will claim that they can find materials and supplies more cheaply on the internet. It is the contractors’ job to explain to the owner that he has a relationship with his suppliers that ensures timely delivery and good quality.
How will overages be charged? Will the contractor issue a written change order, or will the owner pay for the materials directly?
What will be the level of quality for materials? I once handled a dispute over the definition of “builders-grade” toilets. It is better to include brands and specific choices in the scope of work to prevent misunderstandings.
Include a disclaimer in your contract for owner-supplied materials. Require the option to provide a substitution if an item is not available for an extended period.
Make it clear that manufacturers’ warranties will be passed on to the owners. Delineate responsibility for registering products or obtaining rebates.
Don’t assume that an owner will know how allowances work just because they are included in your contract. Provide the additional information listed above in order to avoid disputes!