Thank you for the guidance - allowances
Good afternoon,
I was wondering if anyone has dealt with a situation similar to the one that I am having with regards to allowances in a contract for construction of a residence. My clients entered into a contract with a general contractor. The relevant portion of the contract that addresses allowances reads as follows:
ALLOWANCES: Set forth within the Specifications may be allowances for certain items. If the cost for the items selected by the Buyer exceed the allowance for such item, Buyer shall be responsible to pay the difference at the time of selection. The warranties provided herein, to the extent applicable, shall be in force and effect only for allowance items provided by subcontractors or suppliers approved by Contractor. If the Buyer uses a non-approved subcontractor or supplier the Contractor shall have no responsibility for such items.
As you can see, all references to allowances refer to "items," which I interpret to mean materials only. Now, within only weeks of the start of construction, the general contractor is asking my clients to pay for overages over the allowances for certain items (plumbing, flooring, doors, etc.) due to additional labor costs. In essence, he is arguing that the term allowances in the contract refers to both materials and labor for installation of said materials. In my research, I have found that if labor is to be included as part of the allowances then it should be specifically set forth as such in the contract and, if not, labor is simply a part of the contract price.
I was wondering if anyone has dealt with this situation or is aware of any authority that provides more guidance on this issue. Any input is greatly appreciated.
Best regards,
Erum S. Kistemaker, Esquire
Kistemaker Business Law Group
Sent by my I Phone - please excuse any errors.
I am unaware of any authority stating that allowance figures in a construction contract are presumed “material only” unless specifically stated otherwise. When reviewing or drafting construction contracts, I typically see or include a reference in parentheticals after the allowance figure stating “(material only)” or “(labor and materials)”. Obviously, that added detail removes the uncertainty that you are apparently dealing with in the case of your client’s contract documents. Have you reviewed a bid sheet or SOV? If you are correct, the contractor would have to have a placeholder in his estimate or take off for all the labor associated with the allowance items. Is it there? If not, Contractor will say he bid it based on the allowances being labor and material. The AIA A201, by way of example, says that allowance items are inclusive of both labor and material.
While this doesn’t help your client, something else to consider is how is the contractor to price the labor on material selections not yet made by Buyer? Some material and some fixtures may be harder to work with and require more man hours than others making it difficult if not impossible in some instance for a contractor to accurately price the labor component.
Michael R. Gibbons (Biohttp://lowndes-law.com/our-people/michael-r-gibbons)
Shareholder
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 N. Eola Drive
Orlando, FL 32801
Phone: 407-418-6378
Fax: 407-843-4444
email: michael.gibbons@lowndes-law.commailto:michael.gibbons@lowndes-law.com
website: http://www.lowndes-law.comhttp://www.lowndes-law.com/
[cid:image003.jpg@01D0C48C.441F9390]
From: clc-discussion-bounces@lists.flabarrpptl.org [mailto:clc-discussion-bounces@lists.flabarrpptl.org] On Behalf Of Erum Kistemaker
Sent: Wednesday, July 22, 2015 1:50 PM
To: clc-discussion@lists.flabarrpptl.org
Subject: [CLC-Discussion] Thank you for the guidance - allowances
Good afternoon,
I was wondering if anyone has dealt with a situation similar to the one that I am having with regards to allowances in a contract for construction of a residence. My clients entered into a contract with a general contractor. The relevant portion of the contract that addresses allowances reads as follows:
ALLOWANCES: Set forth within the Specifications may be allowances for certain items. If the cost for the items selected by the Buyer exceed the allowance for such item, Buyer shall be responsible to pay the difference at the time of selection. The warranties provided herein, to the extent applicable, shall be in force and effect only for allowance items provided by subcontractors or suppliers approved by Contractor. If the Buyer uses a non-approved subcontractor or supplier the Contractor shall have no responsibility for such items.
As you can see, all references to allowances refer to "items," which I interpret to mean materials only. Now, within only weeks of the start of construction, the general contractor is asking my clients to pay for overages over the allowances for certain items (plumbing, flooring, doors, etc.) due to additional labor costs. In essence, he is arguing that the term allowances in the contract refers to both materials and labor for installation of said materials. In my research, I have found that if labor is to be included as part of the allowances then it should be specifically set forth as such in the contract and, if not, labor is simply a part of the contract price.
I was wondering if anyone has dealt with this situation or is aware of any authority that provides more guidance on this issue. Any input is greatly appreciated.
Best regards,
Erum S. Kistemaker, Esquire
Kistemaker Business Law Group
Sent by my I Phone - please excuse any errors.
This email message has been delivered safely and archived online by Mimecast. For more information please visit http://www.mimecast.com
Actually, AIA A201 at 3.8.2.2 says labor is included in the Contract Sum but NOT in the allowance figure unless stated otherwise. So, what I said below with reference to AIA contract language was inaccurate.
Michael R. Gibbons (Biohttp://lowndes-law.com/our-people/michael-r-gibbons)
Shareholder
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 N. Eola Drive
Orlando, FL 32801
Phone: 407-418-6378
Fax: 407-843-4444
email: michael.gibbons@lowndes-law.commailto:michael.gibbons@lowndes-law.com
website: http://www.lowndes-law.comhttp://www.lowndes-law.com/
[cid:image004.jpg@01D0C4A2.99D82610]
From: clc-discussion-bounces@lists.flabarrpptl.org [mailto:clc-discussion-bounces@lists.flabarrpptl.org] On Behalf Of Gibbons, Michael
Sent: Wednesday, July 22, 2015 2:40 PM
To: 'Erum Kistemaker'; clc-discussion@lists.flabarrpptl.org
Subject: Re: [CLC-Discussion] Thank you for the guidance - allowances
I am unaware of any authority stating that allowance figures in a construction contract are presumed “material only” unless specifically stated otherwise. When reviewing or drafting construction contracts, I typically see or include a reference in parentheticals after the allowance figure stating “(material only)” or “(labor and materials)”. Obviously, that added detail removes the uncertainty that you are apparently dealing with in the case of your client’s contract documents. Have you reviewed a bid sheet or SOV? If you are correct, the contractor would have to have a placeholder in his estimate or take off for all the labor associated with the allowance items. Is it there? If not, Contractor will say he bid it based on the allowances being labor and material. The AIA A201, by way of example, says that allowance items are inclusive of both labor and material.
While this doesn’t help your client, something else to consider is how is the contractor to price the labor on material selections not yet made by Buyer? Some material and some fixtures may be harder to work with and require more man hours than others making it difficult if not impossible in some instance for a contractor to accurately price the labor component.
Michael R. Gibbons (Biohttp://lowndes-law.com/our-people/michael-r-gibbons)
Shareholder
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 N. Eola Drive
Orlando, FL 32801
Phone: 407-418-6378
Fax: 407-843-4444
email: michael.gibbons@lowndes-law.commailto:michael.gibbons@lowndes-law.com
website: http://www.lowndes-law.comhttp://www.lowndes-law.com/
[cid:image003.jpg@01D0C4A2.987EB090]
From: clc-discussion-bounces@lists.flabarrpptl.orgmailto:clc-discussion-bounces@lists.flabarrpptl.org [mailto:clc-discussion-bounces@lists.flabarrpptl.org] On Behalf Of Erum Kistemaker
Sent: Wednesday, July 22, 2015 1:50 PM
To: clc-discussion@lists.flabarrpptl.orgmailto:clc-discussion@lists.flabarrpptl.org
Subject: [CLC-Discussion] Thank you for the guidance - allowances
Good afternoon,
I was wondering if anyone has dealt with a situation similar to the one that I am having with regards to allowances in a contract for construction of a residence. My clients entered into a contract with a general contractor. The relevant portion of the contract that addresses allowances reads as follows:
ALLOWANCES: Set forth within the Specifications may be allowances for certain items. If the cost for the items selected by the Buyer exceed the allowance for such item, Buyer shall be responsible to pay the difference at the time of selection. The warranties provided herein, to the extent applicable, shall be in force and effect only for allowance items provided by subcontractors or suppliers approved by Contractor. If the Buyer uses a non-approved subcontractor or supplier the Contractor shall have no responsibility for such items.
As you can see, all references to allowances refer to "items," which I interpret to mean materials only. Now, within only weeks of the start of construction, the general contractor is asking my clients to pay for overages over the allowances for certain items (plumbing, flooring, doors, etc.) due to additional labor costs. In essence, he is arguing that the term allowances in the contract refers to both materials and labor for installation of said materials. In my research, I have found that if labor is to be included as part of the allowances then it should be specifically set forth as such in the contract and, if not, labor is simply a part of the contract price.
I was wondering if anyone has dealt with this situation or is aware of any authority that provides more guidance on this issue. Any input is greatly appreciated.
Best regards,
Erum S. Kistemaker, Esquire
Kistemaker Business Law Group
Sent by my I Phone - please excuse any errors.
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