A large building project requires hundreds of decisions, big and small. Many involve choosing products and materials, especially fixtures and finish materials such as paint, carpeting, tile, bathroom fixtures, cabinets and counters, electrical fixtures, towel racks, toilet paper dispensers, and on and on. Some people find this a delightful challenge; for others it’s a nightmare of too many choices and not enough time.
A well-organized contractor will assign you deadlines for making these decisions, and may provide you with samples and color charts – or at least direct you to retailers with whom they commonly do business.
Often, the choices are not known at the time a job is bid, so the contractor puts in an estimate of the cost, called an “allowance.” For example, the bid might include material allowances of $6,000 for kitchen cabinets and countertops, $15 per sq. yd., for carpeting, and $5 per sq. ft. for ceramic tile. Some contractors will also add markup to the allowance, under the notion that they are assuming higher risk and greater difficulty when installing high-end products.
If your contractor priced the job, allowing $5,000 for “builder-grade” cabinets and Formica counters, but you had in mind solid cherry and granite, you will probably not be happy to discover that the real cost of cabinets and counters is $15,000. Similarly, carpeting can range from under $10 per yard to over $40. Ceramic tile can range from $1 per sq. ft. at a home center to well over $10 per sq. ft. for high-end products.
Allowances are also sometimes used for unknowns such as well drilling or removal of underground ledge. You will be quoted an estimate based on a best guess, with the actual price based on the depth of the well or cubic feet of ledge removed.
A conscientious contractor will put in realistic allowances, in line with the quality of construction and overall budget of your project. To prevent unpleasant surprises, do research up front on realistic prices for the products you plan to use.
If you are looking at competing bids, compare the allowance figures – low-balling allowances is an old trick to make a bid look attractive. By all means, avoid using allowances on high-ticket items such as windows. The cost difference between “builder-grade” windows and premium windows can be thousands of dollars for a house or addition. Read more on how to spot Inadequate Allowances.
Materials-only allowances are better than ones that include materials and labor. For example, with ceramic tile, the allowance should cover just the tile you pick, not the labor to install it. The fixed bid should also include the thinset, grout, membranes, and other setting materials. Only the unknown item, the tile itself, should be covered by the allowance. That leaves less uncertainty in the bid. Whenever possible, eliminate all uncertainty (and all allowances) by making product selections before the bidding process. That way, you will get real prices, not guesstimates.
With regard to well drilling, ledge removal, and other high-ticket items, ask whether the contractor will do the job for a guaranteed price. You will pay more than the allowance for the security of a fixed price, but it might be worth it to you.
To protect yourself against unpleasant surprises, it is a good idea to add language to your contract requiring the contractor to notify you about allowance overages ahead of time. For example: “Contractor shall promptly notify Owner in writing, prior to performing the work, of any material choices or other changes in the plans which shall increase the contract price or any allowance price.”
View the Allowances clause in our Model Construction Agreement.
Bottom line. Allowances are a necessary evil. Make sure that the allowances in a contractor’s bid are realistic. To the extent possible, make selections for big-ticket items like doors and windows, kitchen cabinets, and bathroom fixtures before soliciting bids.
See also What’s A Fair Allowance?