For a whole-house job, or large remodel, how are you arriving at allowance figures, and how can the client tell whether he is overspending, when going about selections in a showroom?
Shouldn’t the manufacturer’s “list” price be used to develop the allowance?
Replies
I use the local cost of the item as the allowance amount. If it's a toilet, then I price a typical toilet (like a Toto, something that I'd want to use on a job) at the wholesaler where I'll buy it, and that's the allowance amount. I don't care what it costs to buy it at toilets.com because I'm not going to shop there. If the owner feels that the local cost is too much more than the internet cost (that's where owners price stuff), explain to them that you need a local source because you need availability, service, easy access to parts, and all that good stuff (it's true... you do need those things).
When you reconcile out the allowances on a job you may very well be asked to provide backup (copy of the invoice you paid) showing that the toilet cost $300, or whatever it cost. Savvy owners ask for that stuff rather than just accepting the reconciliation, unless they're your mother, so I think it's best to use your cost on the item as the billed amount and reconcile the allowance against that cost.
Your overhead and profit should be separate and not attached directly to the allowance items. If the owner uses a lower priced item than the allowance, refund the difference but not the overhead and profit on the difference. Your contract should indicate that this is the method. If the owner uses a higher priced item, add additional profit and overhead at the contracted percentage. The rationale is that you took the job expecting a certain amount of overhead and profit, and the owner's choosing lesser items should not affect this. I know that quite a lot of contractors use this method.