CSLB C-33 Painting & DecoratingPlanning and EstimatingMedium
A painting contractor is preparing an estimate for a residential repaint project. The client has requested an 'allowance' of $1,500 for decorative faux finishes in the dining room. How should the contractor incorporate this allowance into the bid?
- AAdd the $1,500 to the total estimated direct costs, then apply the standard overhead and profit percentages to the new total.
- BExclude it from the base bid and present it as a separate, optional cost.
- CEstimate the actual cost of the faux finish work, then add a 20% contingency to the $1,500 allowance.
- DInclude the $1,500 directly in the total bid amount, without applying overhead or profit to it.
Show answer & explanationAnswer & explanation
Correct answer: A. Add the $1,500 to the total estimated direct costs, then apply the standard overhead and profit percentages to the new total.
An allowance is a specific amount set aside in the contract for an item not yet fully defined. Contractors generally treat allowances as a direct cost, to which their standard overhead and profit are applied, as they still incur administrative costs and expect a return on managing that portion of the work.
Why the other options are wrong
- B. Allowances are part of the contract scope, not separate optional costs.
- C. Adding a contingency to the allowance is not the standard way to incorporate an allowance; the allowance itself is the agreed-upon amount.
- D. Overhead and profit should typically be applied to allowances, as the contractor still manages this portion of the work.
Contract Allowance
A specified sum of money included in the contract documents for a particular item or scope of work that is not yet fully defined or selected.
- Used when exact costs are unknown at bid time.
- Contractor usually applies overhead and profit to the allowance.
- Client pays difference if actual cost exceeds allowance, or receives credit if less.
Memory trick: Allowances are like a gift card: it's part of the total, and you still charge for handling it.