How Do Allowances Work for Renovation Projects?

How Do Allowances Work for Renovation Projects?

Obviously, it’s a good idea to carefully plan every aspect of a construction project beforehand. But sometimes, a job will be started while there are still decisions to be made. When that happens – how do owners, construction managers, and contractors plan for uncertainty? That’s where a construction allowance comes in.

What is a Construction Allowance?
When the price of materials or supplies can’t quite be determined, but a price needs to be put to paper, a construction allowance provides some flexibility. Essentially, it’s a ballpark figure that serves as the placeholder for an amount that can’t be determined quite yet. During the life of the project, presumably, the decision leading to the construction allowance will be made – and a price will be determined. With any luck, the construction allowance will be very close to the cost of the actual material or supplies needed.

In these situations, it’s common to make an educated guess at the price. Some may see this as a sort of maximum price for the particular line item or category. But it’s important to be as accurate as possible with construction allowances. Going too far over or under the construction allowance could lead to a dispute.

Important Considerations Regarding Allowances
Understanding the benefits and drawbacks of construction contract allowances can help create a smoother experience for both the contractor and customer, especially where the contractor is concerned. Keep these points in mind:

• Construction allowances should be avoided. The more construction allowances, the more opportunities for misunderstandings between the two parties. Customers should come into the project with a clear idea of what the finished project will look like. Contractors should encourage their customers to make all material selections before submitting the bid.
• Contractors should educate their customers about allowances and about the way it may affect the bid versus those of the competition, if it becomes clear that important decisions will be put off until the work has begun. Customers should ask questions when they see construction allowances existing in their contractors’ bids.
• Customers should acquaint themselves with material costs. Contractors should be able to clearly explain every instance where an allowance is contained in the contract and how the final price will be affected.
• Contractors should provide a work order for the allowance immediately upon completion of the work or purchase of material. Customers should insist on seeing work orders for every project when allowances come into play.
• Contractors should insist that changes, as pertaining to cost allowances, are approved by the client before they lay out any money for the new materials of labor. Customers should request that the contractor secure approval before spending additional funds for materials or labor costs.

While far from an ideal facet of a home building or remodeling project, cost allowances serve a purpose. Preparing beforehand for the unexpected or unplanned can make the process run much smoother for both parties.

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