Hi all. Wondering what the consensus is on budgetary allowances given to homeowners during construction. For example; let’s say that an allowance of $1500 is given for electrical fixtures and an allowance of $2000 for plumbing fixtures. If the owner spends $1400 on electrical and $2100 on plumbing how do you handle this?
Do you call it even, or do you expect the owners to pony up for the $100 on the plumbing and you get to keep the $100 not spent on electrical?
Replies
that is why we use the word " assumptions " when putting in price holders for items to be picked out by the h.o.'s, they can have whatever they want ( above or below the contract ammount ) and i give it to them for cost plus percentage, i also let them know that if it dose not come from one of my regular distributers there will be an extra fee in the event the supplier becomes a problem, or that problem gets turned over to them.
also i have a clause in my contracts that addressed out of the ordinary fixtures etc that require more than the industry standard for installation. ( i know kind of vauge, but most people understand that if something is far more difficult to install it will affect the price )
regards
james
Interesting things to add to my contract, esp. the part about unusual installations. But what about the over / under aspect if the owner comes under their allotment ,who gets the difference?
As a result of the sticky problems you've mentioned and people becoming more product savy, I've abandoned allowances altogether.
I know, I know . We gotta have our mark-up.
Or not.
I decided several years ago to do away with allowances because they seemed to cause more problems and was a source of distrust.
So what I do now is write my agreements with language that allows the owner to supply, at my cost and from my supplier, "tangable" fixtures and materials. These include plumbing, electrical, tile, grout, granite and marble, anything the owner needs to research and pick out.
The down side to the owner is that the material is their responsibility. Delay and defects are on their dime. If it needs replacing, the labor is not included.
Also, I or my sub, can veto inferior products.
And the bottom line (is fatter) is happier clients who feel more in control.
hi, Mark...
Scamp.... stop calling them.............. budgets..
print your ALLOWANCES as a seperate itemized document..
any amounts exceeded are billed for... you didn't exceed them .. your customer did..
build your mark-ups into your allowance number.. if they are reasonable , you don't have to mark-up overages or mention mark-downs for CREDITS..
Mark.. we going to see you and yours at RhodeFest ?Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike, we do have them on a secondary document. We label them Budgetary Allowances. My original question came up because the h.o. was over on plumbing and under on electrical. She wanted the amount that they were under on electrical applied to their overage on plumbing. I explained that I treat each budget seperately and, as per an earlier conversation we encourage clients to use all of their budget(allowance). Not using it all does not entitle you to a credit.
She didn't like this idea and likened it to a "bonus" for me. She also mentioned that she wondered what the loan originator from the bank would think of my business practice. I told her that her banker has no idea how I run my company and that the budgetary allowances in our contract are not a part of the bank's loan and draw procedures.
This has bothered me for a couple of days. I strive to be an ethical business person( often to my financial detriment) and this is why I started this thread. I wanted to know what other builders do and if I was out of line.
Scamper,
Just some random thoughts on ethics. Take 'em or leaf 'em.
>>Mike, we do have them on a secondary document. We label them Budgetary Allowances.
Appearantly, they're not part of the contract price. If they're individually listed and you charge when one is over, then you should rebate when one is under.
If they are listed as a package, then the over/under should be treated as a package.
Same difference.
You're markup on the allowances should be built into the primary document, then, when the question of differences comes up, you don't have to worry about making a profit. You would lose only the markup on the difference if the clients went over their original budget, but you would be keeping the markup on the difference when they stay under budget.
Averages out.
If they wanted to get outrageous about buying up, you would have a good excuse to negotiate a markup for warrentee reasons because the budget was developed with their input.
Keep in mind that, your clients expect to pay if they go over the total allowance budget. That, you will only be losing the markup on the difference between the total budget and the overage. A little more (windfall money) if the total is under budget. That, this is a small price to pay for the education that your practices cause YOU to question their ethics.
SamT
" We label them Budgetary Allowances."
Based on just that wording without anyother details of the contract it sounds to me what it says.
A allowance for the purpose of budgeting. Not a hard and fast fixed number.
But you want to leave one of them as a fixed number (the one that is under), but not he other one.
Doesn't make sense to me.
If I was the client you would not get away with this, period.
At the least I would go out and get more expensive light fixtures to use up that budget item. Even if it ment selling them at a garage sale the month after I moved in.
She wanted the amount that they were under on electrical applied to their overage on plumbing
Whilst not disagreeing in the slightest with your position, I'd have to say that I can see her point. Perhaps you could accommodate her this time, and maybe turn a p***ed-off customer into a happy one?
John
I think that you are out of line(though in a very minor way) and that is why you are asking us about it. What I find a little bit more surprising is that you are worried about $100. This $100 is nothing compared to the damage that you will do to your reputation as an ethical contractor. This has nothing to do with what is written in your contract or whether you are right or wrong. It has everything with the owner's perception of your actions. I would advise you to visit with her at the earliest possible time with a grateful apology to her for putting you on the right track. The fact that you have listened to what she had to say and were willing to admit your mistake will stick in her mind a lot longer than this brief disagreement.
SCAMP.... your method doesn't meet the basic test
i always try to write my contract based on the golden rule.... do unto others..
an allowance table usually lists the different amounts and what they are for..
plumbing fixtures... $3600
lighting fixtures.....$1200
ceramic tile material $3000
total ALLOWANCE $7800...
any amounts expended over will result in an additional charge.. any amount not spent will result in a CREDIT..
your markup on the $7800 is buried in your total price.. and , like the others have stated, you don't apply markup to the any overages or credits.. it doesn't exist as far as the customer is concerned, so don't even mention it..
if the ALLOWANCE is grossly exceeded, execute a CHANGE ORDER to bring things back in line..
i'm pretty sure the above is fairly standard in the industry
Mike Smith Rhode Island : Design / Build / Repair / Restore
Well I can see the consensus is that I was wrong . I have settled up with the h.o. since my last post and they will get a credit of $57 for the amount they came in under budget. I'm afraid I let my emotions get in the way of good business sense over this whole issue. The h.o. has been a p.i.t.a. the whole job and I was on the defensive with them. I will be taking some valuable lessons with me after this job. Thanks to all for the advice.
We've all dealt with customers like that and we have all done and said things that we regret. I'm glad that you were able to work it out. I don't know whether she appreciates it (maybe not), but you can walk away with your head held high. That will stay with you a lot longer than any bad feelings about the customer and you will be able to laugh about it for years to come. I know this for a fact.
Guess I was late to this party. Everyone else had already had fun and went home by time I responded eh?
;)
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
If you call this a party, you really need to broaden your horizons. I appreciate the input.
Interesting concept having the owner supply the fixtures, etc. It would sure save a bunch of non productive time on my behalf if I didn't have to run around town picking up peoples stuff. I would think losing the markup would be worth the value of your time. I do see some problems with homeowners buying the wrong stuff, insufficient quantities, delays, etc. though.
I can see where a homeowner would think they were getting a great deal as well by saving that "big contractor markup" . Once they spend a couple hours dealing with the non professionals at the big box to order their specialty item and save $20 over my costs, and then make a second trip to the store to pick it up( if it was ordered correctly) maybe they will have second thoughts.
scampernatra,
the "assumptions" section is at the end of the proposal and is not included in the schedule of payments. the proposal is subtotaled and the assumptions are put in to give the customer a biger pictrue of what the entire job cost will be, not just a rough materials and installation bid or a bid based on putting in the cheapest fixtures i can get my hands.
by having it seperated and out of the schedule of payments there is no confusion about credits or debits, we just bill the fixtures on purchase ( with our mark up ), ususally they are bundled together with change orders and are generally billed at the same time.
probably clear as mud? this system seems to work well for remodeling. i have no idea how it would work for a custom home.
james
Allowances are just that - allowances for fixtures (plus tax) only. It does not include mark-up. That number is "buried" into the cost of the related project phase or trade. Clients do not get the "buried mark-up" back if they go under budget, and you don't get more if they go over, within reason.
All credits are applied to the final payment. All additional costs are billed prior to work being done or when fixture is purchased - with a notation of related costs. Don't cancel credits and debits during the job. Saying "Fugeddaboutit. It's a wash." rolls off the tongue easily but will cause additional problems. If they challenge you respond that this is how you are set up to handle allowances and has been arrived at through X years of experience. Simple.
F.
ya know if i was your customer i'd just play the game,i'd pick up a 100.00 fan a hd and tell you to leave it lay on the floor,when your done take it back and get my hun. really i don't think you can penalize someone for spending less than whats allowed. call it a break even and go on is my opinon and its worth what ya paid for it.lol larry
Call it even. Allowances are not contractural prices, they are budget estimates to guide the owner in knowing how much he has available to spend so he knows that if he goes over, it is not comong out of anyone else's pocket but his own. If he wants to save, he saves, up to a point.
For instance, If I allow $35/electrical fixture, and He finds a nice one at the antique/junk store for $5, that does not mean that he "saved anything. There might be three hours labour charges in rebuilding it to work and meet code.
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