Provisional Allowances!

Imagine if you walk into a dealership to buy a brand new Mercedes SLK200.  The sales consultant would take you for a drive and you instantly fall in love with the car.  You go back with her and decide to buy the car.

You :  how much is the car?
Her:  the base model is $65,000
You:  what about the leather seating?
Her:  budget $3,000
You:  ok, how about the GPS system upgrade?
Her:  allow $2,500
You:  ummmm how about the alloy wheels?
Her:  let’s say $7,500
You:  so the car will cost me $65,000 plus $3,000 plus $2,500 plus $7,500 = $78,000
Her:  maybe, let’s allow for $78,000 for now until we hear back from the manufacturer, consultants, mechanics, engineers, etc… AND if it’s going to cost more, we will let you know!

Would you pay the deposit and take the car not knowing how much it is going to finally cost you?

If not, why would you do the same with a house that’s multiple times more expensive with 30 years worth of repayments?

The language above used like “let’s allow” or “let’s say” or “let’s budget” are all different ways to say that these costs are provisional allowances.

Definition

A Provisional Allowance is an allowance that can increase or decrease at anytime.  Therefore a Provisional Allowance is the opposite definition of Fixed Price.

In the building world, there are certain elements that cannot be fixed and hence provisional allowances are ok to have.  Examples include but not limited to:

• traffic management
• rock excavation
• easement encasement works
• onsite detention system
• rain garden
• privacy screens as requested by council
• etc…

The exact specifics of these items might not be known at the time, so the best you can do is budget some money for them.  Having said that, I have seen builders fix them upfront.

Items that ideally cannot be provisional allowances include but not limited to:

• tiger tails due to overhead power lines
• drop edge beams
• piering
• spoil removal
• service connections
• other costs that any reputable builder should be able to investigate upfront

Please remember that this is a generalisation as it also depends on the complexity of the project.  If you are building on an extremely steep block (let’s say a 7m slope for example), then provisional allowances might work better for you and your builder.

Due to the many unknowns, the builder will do the work and charge you the exact amount instead of over-allowing and ultimately costing you more.

A Note

Please also remember that builders who provide a fixed price will generally have a seemingly higher upfront.  This doesn’t mean they are more expensive or cheaper than other builders who use provisional allowances within their tenders.

Builders have different approaches when it comes to providing your build price.

So it pays handsomely to understand these approaches and decide which builder best fits your requirements.