Allowance decision deadlines and what a missed one costs

Most of the obligations in a GMP contract fall on the contractor. A handful fall on the owner, and allowance decisions are the most common. Each allowance waits for a selection. Each selection has a date by which it must be made so the contractor can buy the scope in time. That date is usually in the schedule, not the contract, which is why owners miss it.

Where the deadlines come from

The contractor builds a procurement schedule backward from installation. If the tile goes in during month fourteen, the subcontractor needs the material in month twelve, the order needs to be placed in month nine, and the owner needs to pick the tile in month eight. The month eight date is the allowance decision deadline. It is a real constraint, derived from lead times, not a preference.

These dates appear in the contractor's schedule as owner milestones or required decision dates. Some contracts list them in an exhibit. Many do not, and the owner learns of them from a monthly schedule update or from an email asking for a decision that is already late. Check your contract for whether decision dates are fixed, and ask the contractor for the full list in the first month.

What a missed deadline costs

Three things, in rising order. The first is expediting. If the owner decides late, the contractor may be able to hold the schedule by paying for faster delivery, and that cost is an owner change. The second is substitution. If the selected material cannot arrive in time, the owner may have to accept something else, and the allowance reconciles against a product the owner did not want. The third is delay. If neither works, the installation slips, and under most AIA A133 based agreements a delay caused by late owner decisions entitles the contractor to time and often to extended general conditions.

None of these costs come from the allowance itself. They sit outside the GMP as owner caused changes. An owner who thinks of an allowance as only a cost risk misses that the larger risk is a timing risk, and the timing risk is entirely the owner's to manage.

A fictional example

On a fictional $35 million elementary school, the casework allowance has a decision date in month seven. The district's board meets monthly and the casework samples reach the agenda in month nine. The contractor expedites the order at an added $45,000, charged as an owner change with fee. The allowance itself reconciles $30,000 under. The net to the owner is a cost, and it would have been a saving if the decision had been on time.

Why public owners miss them most

School districts, universities and public agencies make decisions through boards and committees. A selection that a developer makes in an afternoon takes a public owner a meeting cycle or two. The contractor's decision date does not allow for that unless the owner tells it to. The fix is to add the owner's own internal lead time to each decision date and treat the earlier date as the real one.

The same applies to any owner with a layered approval process. Owner's representatives managing several clients should keep a decision calendar per client, because the contractor's schedule will not distinguish between a client who decides in a day and one who decides in a month.

Keeping the deadlines on the owner's side

Each allowance in the owner's register should carry its decision date, the internal date the owner needs to start the approval process, the person responsible, and the status. The register should raise a flag when a decision date is within a month and the status is still open. That flag is the single most useful thing an allowance register does, because it turns a schedule entry into an owner action.

Costwitness holds the decision date on each allowance and flags approaching and missed deadlines in the monthly owner report, alongside the allowance's value and expected range. The software raises the flag. The decision, and the meeting it takes to make it, belong to the owner.

In the product

Allowance register, Monthly owner report, Change order register. Free tool: Allowance Confidence Band, Schedule Risk versus Float.

Keep reading

Earlier: Why an allowance set at 50 percent design carries a wider band than one set at 90. Later: Allowance reconciliation: how and when it should happen. All articles on buyout and shared savings.