All About Construction Cash Allowances v1.2
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A presentation on Construction Cash Allowances as typically implemented by the CCDC (Canadian Construction Documents Committee)
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All About Construction Cash Allowances v1.2
- 1. All about Construction Cash Allowances Version 1.2
- 2. By Peter Vander Klippe
- 3. What is a Construction Cash Allowance?
- 4. Cash Allowances are funds set aside for work that will be detailed later
- 5. Why should you care?
- 6. Why care #1: Cash Allowances are part of most CCDC* contracts
- 7. *CCDC = Canadian Construction Documents Committee
- 8. *Almost every construction contract in Canada is based on a CCDC contract
- 9. Why care #2: They allow you to tender sooner
- 10. Example: A retail project that was part of a larger program
- 11. The client was bundling the refrigeration installation
- 12. (So that they could get the best price)
- 13. But they needed to get started on the construction ASAP
- 14. So they included a refrigeration installation Cash Allowance
- 15. The amount was estimated based upon previous costs
- 16. After they received the pricing on the refrigeration installation bundles
- 17. The work was assigned to the contractor
- 18. With no additional mark up for overhead or profit*
- 19. *this won’t work if your estimate is too low
- 20. Work started on site sooner then if we had to wait for the final price
- 21. Why care #3: They provide flexibility
- 22. You can use Cash Allowances to be more flexible
- 23. This works best for scope near the end of the project
- 24. Like landscaping, furniture, and security.
- 25. You can defer some decisions to later in the process
- 26. So if a deal is found on used furniture you can sod instead of seed the lawn
- 27. Or if you decide to use keys instead of swipe cards you can afford a patio
- 28. Or if you exceed your budget you can use some of the Cash Allowance
- 29. No patio or Sod
- 31. Things to watch out for when using Cash Allowances
- 32. Watch out for multiple specific Cash Allowances
- 33. This can limit your flexibility and run against approval thresholds
- 34. Example:
- 35. You have three Cash Allowances
- 38. And $140,000 for refrigeration installation
- 39. For a total of $200,000
- 40. Contract is awarded, contractor starts work
- 41. And it turns out that it is going to take a lot more security work
- 42. To connect this system to the client’s other buildings requires upgrading the existing system
- 43. The new security estimate is $25,000
- 44.
- 45. But, thankfully concurrent to this,
- 46. The pricing came in for the refrigeration installation
- 47. And the layout was revised, reducing the number of cases
- 48. Which reduced the refrigeration installation to $125,000
- 49.
- 50. So now we have:
- 52. The same $50,000 for landscaping
- 53. And $125,000 for refrigeration installation
- 54. For a grand total of $200,000
- 55. BUT
- 56. When you tell your contractor about this
- 57. He demands $2,250 extra in overhead and profit
- 58.
- 59. He says that managing a security company is a lot more work
- 60. So he included a 20% markup in his bid for the security Cash Allowance
- 61. And only a 5% markup for the refrigeration installation Cash Allowance
- 62. So because we are shifting $15,000 from 5% to 20% markup, he wants his cut
- 63. And to make it worse
- 64. Your client lets you know that as the security costs has risen by 150%
- 65. He needs his CEO to sign off on the change
- 66.
- 67. This could all be avoided
- 68. Make sure it is clear that there is only one Cash Allowance
- 69. Watch out for hidden Cash Allowances
- 70. It can get complicated if Cash Allowances are not clearly identified
- 71. Example
- 72. The mechanical sub- consultant ran out of time prior to tender
- 73. And instead of designing the reverse osmosis system
- 74. A drawing note was included that instructed the contractor to carry a $15,000 Cash Allowance
- 75. Possible outcome #1: Waste of funds
- 76. 2 bids are disqualified as they didn’t include this Cash Allowance
- 77. One of these bids that was $45,000 lower then the awarded contractor
- 78.
- 79. Possible outcome #2: Contractor claim
- 80. The contractor awarded the job missed this Cash Allowance in his estimate
- 81. (This often happens as missing something lowers your price)
- 82. So when the Supplemental Instruction is issued for the reverse osmosis system
- 83. The contractor submits a claim for the work at $17,345 + 10% markup
- 84.
- 85. Possible outcome #3: Double dipping
- 86. The contractor technically did include the cash allowance in his price
- 87. But do to staffing changes at the contractor’s company
- 88. The new representative for the contractor submits the claim anyways
- 89. And the contract administrator isn’t aware of this Cash Allowance
- 90. So the claim is approved
- 91. The contractor also invoices for 100% of his base work
- 92. And as the contractors invoice doesn’t itemize the Cash Allowance
- 93. He is paid for both the Cash Allowance and the draw
- 94. Which gives the contractor $30,000 for $15,000 worth of work
- 95.
- 96. Summary
- 97. Cash Allowances can be extremely useful*