Why Contractors Should Consider Using Allowances

The how and why behind allowances in construction

Allowances are an awesome tool to have in your bidding toolbox. The help you build contracts faster, allow for greater flexibility to your customer, and help you make sure you don’t lose money on fixed bids.

What is an allowance?

An allowance is a fixed amount of money in an estimate or budget for a specific item or service that has not yet been priced. Allowances can protect you from cost overages on fixed bids and save you a lot of time estimating. They also provide your customer a lot of flexibility to choose their own products after you’ve given them a bid.

EXAMPLES

A tile contractor might put an allowance of $3.00 per square foot on their estimate instead of quoting a specific product.

Why use allowances?

Speed

You don’t need to define every line item when building your bid. Your customer can sign a contract with some things unspecified, such as materials, finishes, and fixtures. Allowances can save contractors a ton of time.

Accuracy

Many contractors give fixed bids on projects, which is risky when there are unknowns such as missing selections for material items. Allowances are placeholders on the budget that can be reconciled after your customer makes a selection. Allowances protect you from liability or frustration from your customer from overruns.

Flexibility

If your customer wants to spend more money on a selection, their free to do so. Construction projects are complex and can often encounter unexpected changes or challenges along the way. By including allowances in the contract, both parties have room to adjust and make decisions as the project progresses.