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Allowances in Construction Contracts Part 1

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Contractors know that they need to control as many variables as possible if they want to see their projects through from conception to completion. In this three-part series, a Houston construction attorney at Cotney Law will be discussing a potential unknown that can lead to a costly dispute: contract allowances. So often a dispute arises because expectations aren’t properly defined in the contract. To ensure that your contracts are clear and well-defined, have them reviewed by an experienced attorney at our Houston law office.

What Is an Allowance?

An allowance is an estimate of how much a material or task will cost on a construction project. Allowances are used because it is often impossible to discern the exact price of every item that could possibly be needed on a construction project. Even the most well thought out of estimates can be a shot in the dark once work commences. You can already see where the problem lies. When actual project costs exceed or fall below expectations, contractors are left having to explain the cause.

What Types of Allowances Are There?

There are two types of allowances, an installed allowance and a material allowance, and they both come with a potential for conflict. An installed allowance covers the costs of both labor and materials, while a material allowance only covers the cost of materials. For example, a material allowance is the amount of money to supply a wood door, while an installed allowance is the amount of money to acquire and install the door.

How to Mitigate Conflict

It’s imperative that the details of an allowance are understood by all parties before a contract is signed. Owners that agree to one of the above allowances must understand that the final cost of the materials and labor may not match the initial estimate. This is a likely possibility considering that recent tariffs have increased imported material costs. As we’ll see in part two, particular care must be taken when stipulating what happens when material costs rise. Our Houston construction attorneys specialize in construction law and are proficient in contract drafting and reviewing. To ensure that your contracts account for fluctuating material costs, partner with our team of attorneys at Cotney Law.

To learn more about contract allowances, read parts two and three.

If you would like to speak with one of our Houston construction attorneys, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.