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What should a finish allowance adjustment actually include?
If an owner selects a finish above its allowance, how do you tell what the change order is really adding to the contract price? An allowance might cover more than the material itself, so comparing the item price with the allowance alone may not show the full out-of-pocket difference.
A hypothetical example would help: say the allowance is for a finish with installation, while the selected option costs more. Is the adjustment typically just the material difference, or can labor, tax, and contractor markup also change? And if the final selection comes in under allowance, how is the credit usually calculated? I’d want the scope and arithmetic spelled out before approving the change, but I’m curious how different contracts handle it.
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2 replies
The key is to compare like with like. If the allowance includes the finish and installation, compare that full included scope with the selected finish on the same basis, not just the two material prices. Then itemize any change in labor, tax, delivery, or markup separately, as the contract requires. An under-allowance credit should use that same calculation basis; otherwise the upgrade charge and the credit aren’t true mirror images.
The tricky part is that an allowance figure alone can’t settle the math if the contract doesn’t define what it covers or how markup applies. Markup on the net difference can produce a different adjustment than markup on added costs, so I wouldn’t assume either method. The contract needs to establish the basis first; if it doesn’t, the amount can’t be reliably derived from the allowance by itself.