That Allowance in Your Construction Contract is a Buried Landmine
- An allowance is a placeholder in a construction contract
- Many fraudulent contractors use allowances as a way to artificially lower their bid in order to make it attractive
- So ensure the allowance accurately represents the work or materials to be supplied
An allowance is an amount of work or deliver a certain amount of material to a project. The problem with an allowance is that you just don’t know whether the number picked is actually adequate to do the job.
Many unscrupulous contractors use allowances as a way to artificially lower their bid. They know that the flooring or the kitchen or the roof may cost more than what they put in for the allowance, but they put in a lower number for the allowance to give you a total that looks attractive. You find out later that it really was just a placeholder and it turns out to be substantially more than the allowance amount.
If you are presented with a contract that has allowances, you need to ensure that the allowance accurately represents the work or materials to be supplied. Many contracts have a provision that says that the allowance is the contractor’s best estimate of what the work or the materials should cost. But obviously your best contracting position is to have no allowances at all. Always try to have a fixed scope of work and fixed dollar amounts with respect to the work and materials you need for your project.
Sometimes, you need to have an allowance amount because you can’t always define the scope of the work. You need to ensure that the allowance accurately represents what you are getting for the labor and the materials. To ensure this, you need to seek advice from design professionals like your architects and engineers. Ask them if they believe the number represents a fair estimate of what the labor and materials should be for this allowance amount. You can also compare allowance numbers between contractors.
Always remember that an allowance amount could be a land mine. That should be avoided.