Attorney Jack Plowman on construction contracts and cost allowances

Posted By Cliff Tuttle | August 6, 2008

Posted by Cliff Tuttle

The following is a Guest Blog article by Jack W. Plowman, an eminent constuction litigator and fidelity and surety bond litigator. Here he addresses a practical issue arising under commonly-used American Institute of Architects construction contract forms and reaches a well-reasoned conclusion. Jack is currently Of Counsel at Bentz Law Firm, P.C., where he can be contacted at 412-563-4500.

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Is Labor an Extra in Respect to Cost Allowances?

by Jack W. Plowman*

It is common practice in residential construction to set cash allowances for certain items as to which the Owner may wish to exercise personal preferences. For example, some of the usual cash allowances are for kitchen cabinets, bathroom fixtures, or carpeting. If the cost of any of these allowances exceeds the cost allowance specified in the contract, then the Owner pays the additional sum or, if less, a credit is given to the Owner. But does the allowance include the labor necessary in installing the allowance items?
The easy answer is, “what does the contract say?” Unfortunately, the contract is often itself not clear. As an example, the American Institute of Architects Form A201, General Conditions (2007), provides:
3.8.1. “The Contractor shall include in the Contract Sum all allowances stated in the Contract Documents. Items covered by allowances shall be supplied for such amounts and by such persons or entities as the Owner may direct, but the Contractor shall not be required to employ persons or entities to whom the Contractor has reasonable objection.

3.8.2. “Unless otherwise provided in the Contract Documents:

“….

2. “Contractor’s costs for…labor, installation costs, overhead, profit and other expenses contemplated for stated allowance amounts shall be included in the Contract Sum but not in the allowances.”

Thus, it would appear that under the A201, the labor incident to the installation of the cost allowance items, is included in the contract sum for the “work”. “Work” is defined in AIA A201 as follows:
The term “Work” means the construction and services required by the Contract Documents, whether completed or partially completed…and includes all other labor, materials, equipment, and services provided or to be provided by the Contractor to fulfill the Contractor’s obligations. The Work may constitute the whole or a part of the Project.

The Standard Form of Agreement between Owner and Contractor A101(2007) provides:

“The Contractor shall fully execute the Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others.”

It is strange then that contractors often try to charge the Owner, as an extra, for the labor cost incurred in installing the cost allowance items. But each contract must be individually reviewed, to determine what is included, as all contracts are not as clear on this issue as they should be.
* Of counsel, Bentz Law Firm, P.C.; fellow, American College of Trial Lawyers; Pennsylvania Super Lawyer; member, American Bar Association Forum on the Construction Industry; member, American Bar Association Fidelity and Surety Committee; Member, National Bond Claims Association; Adjunct Professor, Emeritus, Duquesne University School of Law; Past President, Allegheny County Bar Association; Author, Pennsylvania Mechanics’ Liens (Professional Education Systems, 1989); Author, with K.W. Lee, Construction Contracting for Public Entities in Pennsylvania (Lorman Education Services, 2002). Author, Representing the Contractor, in Construction Contracts, from Concept to Concrete (Pennsylvania Bar Institute, 1988).

Permission is hereby granted for the reproduction and dissemination of this article, providing the source and identity of the author are set forth.

© 2008 BENTZ LAW FIRM, P.C.

COMMENTS AND INQUIRIES POSTED TO THIS ARTICLE WILL BE DIRECTED TO JACK PLOWMAN.

CLT

Welcome

CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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