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FORGET THE ALLOWANCE

March 20, 2014

For those that don’t know, an allowance is not only the amount of money you give to your teenage children when they remember to take out the garbage, it is a common concept in a construction contract where a contractor gives an estimate of the cost for certain unspecified items and/or appliances. By way of example, as part of a home renovation, a contractor will give a $10,000.00 allowance in a contract for kitchen appliances (i.e. refrigerator, stove/oven, dishwasher, etc.) without specifying the exact make or model. While this practice is common, it is problematic for both the contractor and the property owner.

 

Contractor issues include but are not limited to: obligating the contractor to purchase the items that are the subject of the allowance; purchasing the wrong make, model or color/finish; and/or exceeding the allowance without getting the prior written approval of the property owner. Any or all of these could lead to a contractor not getting paid and/or properly reimbursed for the items purchased.

 

Allowances can also be problematic for property owners because the property owner: may not be getting exactly what they want (i.e. lesser quality, wrong color/finish, etc.); may be paying too much for the same items being purchased by the contractor; and may not get all of the receipts, proofs of purchase and warranty information necessary to process a warranty claim in the event something breaks and needs to be repaired or replaced.

 

Having represented both contractors and property owners, we find that the better method is to avoid allowances altogether. Contractors –just quote for labor and materials and then add your profit and overhead because it does not make a difference whether you are installing a $5,000.00 Sub-zero or a $500.00 GE refrigerator, the work is essentially the same. Property owners – buy what you want in the desired color/finish, at the price you want to pay and retain all of the necessary receipts and warranties. This will avoid unnecessary confusion and leave both sides with enough money to give their teenage children an allowance when they actually feed the dog without being reminded.

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