As I sit down to write my annual list of resolutions for contractors, I am amazed at how much things changed in 2020. Construction was going well and then, in March 2020, COVID-19 hit. At first, we thought it was going to be a disaster for the construction industry. States, cities and towns shut down projects and many applied for PPP loans. Then, something amazing happened. Construction was considered an essential service and everyone was back to work.  That said, the work world changed: companies were donating their PPE to frontline workers, COVID-19 protocols had to be followed and paperwork had to be filed. Everyone was scrambling to figure out how to comply and keep their businesses going. So, you may or may not ask, what was I, as a construction lawyer doing? I spent March and April thinking about the new risks contractors/construction companies were facing and developing contract clauses to protect the industry. I wrote a number of blog posts with clauses to add to your contra

Explaining Allowances in Contracts

To contractors, allowances in contracts may be self-explanatory, but owners often find them confusing.  A typical section on allowances may look like this:

             Cabinets                                    $10,000
             Kitchen appliances                    $25,000
             Bathroom fixtures                     $20,000

What contracts often don’t explain is, what happens when the full value isn’t used? If I only spend $8,000 on the cabinets, do I then get to allocate the $2000.00 to another category?  If not, why not?

Who is responsible for buying the materials?  Will the checks be made out to the General Contractor?

Is the General Contractor charging a mark-up on materials?  Will this include change order items?
Contractors often find that owners will claim that they can find materials and supplies more cheaply on the internet.  It is the contractors’ job to explain to the owner that he has a relationship with his suppliers that ensures timely delivery and good quality.

How will overages be charged? Will the contractor issue a written change order, or will the owner pay for the materials directly?

What will be the level of quality for materials?  I once handled a dispute over the definition of “builders-grade” toilets.  It is better to include brands and specific choices in the scope of work to prevent misunderstandings.

Include a disclaimer in your contract for owner-supplied materials.  Require the option to provide a substitution if an item is not available for an extended period.

Make it clear that manufacturers’ warranties will be passed on to the owners.  Delineate responsibility for registering products or obtaining rebates.

Don’t assume that an owner will know how allowances work just because they are included in your contract.  Provide the additional information listed above in order to avoid disputes!

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