Fixed Price - Should I have allowances?

gaonmymindMay 18, 2012

I have read just about every post on fixed price contracts, however there is one point I don't understand. It was the recommendation that you should have no allowances but unit quantities.

Does this mean instead of a $5k lighting allowance you should have a 25 light lighting allowance?

Is there to be an assumption that you can pick anything no matter the price for the allowance amount. Most builders who do fixed price will give allowances for everything not just the unit number. The exception has been can lights and millwork.

Ex. I have cart blanche for all my household cabinetry as far as style, drawers, ect. but not the wood type. There is no allowance specified.

What do I need to know as I want all this figured out up front before I sign this contract? We are using the GA REA Contract to Build (Stipulated Sum) w/ Basement....that is literally the name of it. But of course there will be addendums as to specifics.


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The answer to your question depends in large part on the extent to which you have specified in the contract and design documents the finishes for your project.

Using appliances as an example, if your contract specifies the exact appliance models (i.e., GE 36" model ABC123) and their quantities, then no, you don't need to have dollar allowances. The builder will price the specified items and include them in his fixed price contract.

If finishes are not specified, then yes, you should certainly have a dollar amount allowance for you to spend on that finish category. For example, if your contract just said the builder will provide two front porch lights but didn't specify the exact model or give you an allowance, he could literally buy the cheapest two lights and install them and technically meet his obligations under the contract. In this case, you'd want to specify the exact model up front OR get a dollar allowance so that you could decide later.

Obviously, if you get allowances, you'll want to really think about the amounts and determine whether they are sufficient.

I would also recommend your contract stipulates that the allowance amounts be interchangible (i.e., you can use the entire pot of allowance money to cover the entire list of allowance items in any way you wish to allocate the funds) and that you get credited for any allowance amounts unused (not that this will happen, realistically).

I would also recommend that the language regarding allowances is clear on whether the amounts relate to materials or to both materials and installation and related supplies. Kitchen counters is a good example - this allowance would usually include both materials and installation. Tile is another example of one that could be a grey area unless you are specific - in other words, does the tile allowance include (1) just the tile, (2) tile and materials (grout, sealant, adhesive, etc.), or tile, materials and labor?

Lots of things to think about, but you'll save yourself a lot of headache and heartache if you think this through ahead of time.

Good luck!

    Bookmark   May 18, 2012 at 12:38PM
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Thanks...this helps alot. I am having him put a sheet together that outlines all of this. I just had read conflicting info regarding this.

    Bookmark   May 18, 2012 at 1:13PM
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