Tuesday, December 4, 2012

Construction Bid Allowances; Watch out for the OUCH!

What are allowances in a construction bid?
Allowances are common in construction bids. The purpose is to plug in a $ amount into the bid for finish items such as tile, flooring or fixtures. Usually these items have not been selected or specified at the time of bidding and therefore an allowance is used.
Allowance items (in terms of your contract) are dollar numbers that can go up or down depending on the final selection of the items. Almost always they GO UP and here is where the OUCH comes in. Unfortunately, this is also where unscrupulous contractors will play money games with their bottom line bid numbers and most consumers will not even realize it until they are under contract and it’s a bit too late.
With the current tight economic times, it is understandable that people on both sides of the table are pinching pennies. The consumer wants the best price and the contractor wants the job. Most often, contractors will plug in unrealistic allowance numbers (too low) to make their overall bid cost attractive to their potential client and hopefully win the bid. The consumer then, unwittingly thinks that they are getting the same product for a cheaper price. NOT SO!
What the contractor just did was play a slight of hand.  You (the consumer) are thinking you are getting a brushed nickel faucet when the contractor figured the cost of a plastic one. Later on during construction when you realize that the allowance dollars are used up and you still have many more items to acquire, you will be coming up with the overage out of your own pocket beyond the contract price.  Once you accept and sign your contract, you are legally bound by it and it is very difficult to get out from under it later on and the fight begins.
The best way to avoid these sneaky allowance items is to do your homework early during the design phase and select everything ahead of time, from light fixtures to door knobs.. You don’t have to actually buy the items, just make the selection. Make a list of the item, manufacturer, part number, color/finish, price and vendor. Work with your design professional, sales person or contractor to figure the quantity (linear feet, square feet, square yard, etc) and do the math. Keep a note book with you while you are shopping and jot down the information. Draw some sketches (like for tile designs and layout) or even take a picture of the showroom example. An ounce of prevention is worth a pound of cure! Spend the time and do the footwork of making all of your selections ahead of time and save yourself the grief later of unexpected cost overruns and battles with your contractor.
When you send out your plans for bids, make sure you include a copy of your specification list of all these items with the plans as well. Also reference this specification list in your final contract and make it clear in your contract as to whom will be providing (buying) these items and who will be installing them as well.
Another way to handle allowance items is to state, “Owner to provide (you buy it)…….contractor to install”. This approach will allow you to have more control over expenses, however you will be taking on the responsibility of acquiring and providing the materials to the contractor.