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What can we do as homeowners in this situation? How do we approach our contractor about this?

District of ColumbiaConstruction Contract

My partner and I are going through a home renovation and are happy with the progress being made. In our contract, there is an allowance for windows priced at $22,000. The language is not clear if this allowance includes labor and installation. After receiving the invoice, the actual cost of the windows was $11,300. Obviously we want to be credited the difference. What can we do as homeowners in this situation? How do we approach our contractor about this? Thank you.

1 reply

Apr 15, 2020
Allowances on construction contracts aren't set in stone. Quite the contrary, they're designed to building some flexibility to the budget. And, if the actual price of the line item doesn't rise to the amount on the allowance, then the awkward situation described above happens - what to do with the surplus? Levelset discusses that idea and more, here: How to Use Construction Allowances | Construction Accounting.

Determining who's entitled to an allowance surplus

First, it's a good idea to see if there's any insight written into the contract. It's possible that the terms of the contract will dictate where the funds should go. If the contract is silent, it'd be wise to discuss the matter openly and honestly with the contractor. Seeing what's owed for the windows and the installation might be a good first step - and they may give you a figure that's less than the allowance. Or, if they inform you that they're claiming the entire allowance, then at least you know where they stand. But, if the allowance far exceeds the actual cost of materials and installation for that line item, the contractor should be reasonable. And, even if they don't agree to the actual cost, you may be able to negotiate a smaller fee on the allowance or negotiate a credit on the account for some of the other work.
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