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All About Construction Cash Allowances v1.2

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. 1. All about Construction Cash Allowances Version 1.2
  2. 2. By Peter Vander Klippe
  3. 3. What is a Construction Cash Allowance?
  4. 4. Cash Allowances are funds set aside for work that will be detailed later
  5. 5. Why should you care?
  6. 6. Why care #1: Cash Allowances are part of most CCDC* contracts
  7. 7. *CCDC = Canadian Construction Documents Committee
  8. 8. *Almost every construction contract in Canada is based on a CCDC contract
  9. 9. Why care #2: They allow you to tender sooner
  10. 10. Example: A retail project that was part of a larger program
  11. 11. The client was bundling the refrigeration installation
  12. 12. (So that they could get the best price)
  13. 13. But they needed to get started on the construction ASAP
  14. 14. So they included a refrigeration installation Cash Allowance
  15. 15. The amount was estimated based upon previous costs
  16. 16. After they received the pricing on the refrigeration installation bundles
  17. 17. The work was assigned to the contractor
  18. 18. With no additional mark up for overhead or profit*
  19. 19. *this won’t work if your estimate is too low
  20. 20. Work started on site sooner then if we had to wait for the final price
  21. 21. Why care #3: They provide flexibility
  22. 22. You can use Cash Allowances to be more flexible
  23. 23. This works best for scope near the end of the project
  24. 24. Like landscaping, furniture, and security.
  25. 25. You can defer some decisions to later in the process
  26. 26. So if a deal is found on used furniture you can sod instead of seed the lawn
  27. 27. Or if you decide to use keys instead of swipe cards you can afford a patio
  28. 28. Or if you exceed your budget you can use some of the Cash Allowance
  29. 29.  No patio or Sod
  30. 30.  Staying within your budget
  31. 31. Things to watch out for when using Cash Allowances
  32. 32. Watch out for multiple specific Cash Allowances
  33. 33. This can limit your flexibility and run against approval thresholds
  34. 34. Example:
  35. 35. You have three Cash Allowances
  36. 36. $10,000 for security
  37. 37. $50,000 for landscaping
  38. 38. And $140,000 for refrigeration installation
  39. 39. For a total of $200,000
  40. 40. Contract is awarded, contractor starts work
  41. 41. And it turns out that it is going to take a lot more security work
  42. 42. To connect this system to the client’s other buildings requires upgrading the existing system
  43. 43. The new security estimate is $25,000
  44. 44.
  45. 45. But, thankfully concurrent to this,
  46. 46. The pricing came in for the refrigeration installation
  47. 47. And the layout was revised, reducing the number of cases
  48. 48. Which reduced the refrigeration installation to $125,000
  49. 49.
  50. 50. So now we have:
  51. 51. $25,000 for security
  52. 52. The same $50,000 for landscaping
  53. 53. And $125,000 for refrigeration installation
  54. 54. For a grand total of $200,000
  55. 55. BUT
  56. 56. When you tell your contractor about this
  57. 57. He demands $2,250 extra in overhead and profit
  58. 58.
  59. 59. He says that managing a security company is a lot more work
  60. 60. So he included a 20% markup in his bid for the security Cash Allowance
  61. 61. And only a 5% markup for the refrigeration installation Cash Allowance
  62. 62. So because we are shifting $15,000 from 5% to 20% markup, he wants his cut
  63. 63. And to make it worse
  64. 64. Your client lets you know that as the security costs has risen by 150%
  65. 65. He needs his CEO to sign off on the change
  66. 66.
  67. 67. This could all be avoided
  68. 68. Make sure it is clear that there is only one Cash Allowance
  69. 69. Watch out for hidden Cash Allowances
  70. 70. It can get complicated if Cash Allowances are not clearly identified
  71. 71. Example
  72. 72. The mechanical sub- consultant ran out of time prior to tender
  73. 73. And instead of designing the reverse osmosis system
  74. 74. A drawing note was included that instructed the contractor to carry a $15,000 Cash Allowance
  75. 75. Possible outcome #1: Waste of funds
  76. 76. 2 bids are disqualified as they didn’t include this Cash Allowance
  77. 77. One of these bids that was $45,000 lower then the awarded contractor
  78. 78.
  79. 79. Possible outcome #2: Contractor claim
  80. 80. The contractor awarded the job missed this Cash Allowance in his estimate
  81. 81. (This often happens as missing something lowers your price)
  82. 82. So when the Supplemental Instruction is issued for the reverse osmosis system
  83. 83. The contractor submits a claim for the work at $17,345 + 10% markup
  84. 84.
  85. 85. Possible outcome #3: Double dipping
  86. 86. The contractor technically did include the cash allowance in his price
  87. 87. But do to staffing changes at the contractor’s company
  88. 88. The new representative for the contractor submits the claim anyways
  89. 89. And the contract administrator isn’t aware of this Cash Allowance
  90. 90. So the claim is approved
  91. 91. The contractor also invoices for 100% of his base work
  92. 92. And as the contractors invoice doesn’t itemize the Cash Allowance
  93. 93. He is paid for both the Cash Allowance and the draw
  94. 94. Which gives the contractor $30,000 for $15,000 worth of work
  95. 95.
  96. 96. Summary
  97. 97. Cash Allowances can be extremely useful*
  98. 98. *if used correctly

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