“Allowances”, or “Allowance Items” are estimate line items which cannot be accurately priced until the customer selects a specific product or material for that line item. There are millions of examples of this, including roofing, windows, siding, trim, decking and flooring materials, and all finish fixtures and appliances.
Designating a line item as an “Allowance Item” allows you to plug in a ball park number for the item in order to come up with an estimate total, but at the same time indicate to your customer that the amount for that item is what you are “allowing” for the cost of that item, and that the customer will be billed based on the actual cost of the product they select.
So this means that, in order to invoice customer for the actual costs of allowance items, you need to enter the actual costs of allowance items. If you don’t enter the actual cost for an allowance item, you can still invoice it for the allowance (estimated) amount.
Contract Type
There are three types of contracts in the construction contracting business:
Fixed Sum
Fixed Sum jobs are invoiced based on the estimated costs, except for allowance items which are invoiced based on the actual cost.
Cost Plus
Cost Plus jobs are invoiced based on the actual costs, plus a markup percentage agreed upon in the contract. Both the actual cost and the markup is revealed to the customer.
Time and Materials (T&M)
Time and Materials jobs are invoiced based on the actual costs, plus a markup percentage that is not revealed to the customer.
The idea of allowances only applies to “Fixed Sum” contracts, not “Cost Plus” or “Time and Materials” contracts, because all items in Cost Plus and Time and Materials contracts are allowances (billing for Cost Plus and Time and Materials contracts is based on actual costs).
You set the Contract Type individually on estimates and change orders, not for the whole job. This means you can have a job in which the estimate is a Fixed Sum contract, but change orders are Cost Plus or T&M contracts.
So that means you need to track the actual costs of allowance items in order for them to be invoiced based on actual costs. If you don’t enter the actual cost for an allowance item, you can still invoice it for the allowance (estimated) amount.
Entering Actual Costs
ContractorTools allows you to enter actual costs on any “level” in a job, which includes:
The job estimate or change order(s)
Item group
Line item
Actual costs for allowance items must be entered on the allowance line item in order to be invoiced as the actual cost for the allowance item.
When actual costs entered on other levels are invoiced, they appear as invoice amounts against those levels. For example, costs entered at the estimate level are invoiced as “Estimate Costs”; costs entered for a change order are invoiced as “Change Order Costs”; costs entered at a group item level are invoiced as costs for that group item.