A presentation on Construction Cash Allowances as typically implemented by the CCDC (Canadian Construction Documents Committee)

1. All about Construction
Cash Allowances
Version 1.2

2. By Peter Vander Klippe

3. What is a Construction
Cash Allowance?

4. Cash Allowances are
funds set aside for work
that will be detailed later

5. Why should you care?

6. Why care #1: Cash
Allowances are part of
most CCDC* contracts

7. *CCDC = Canadian
Construction Documents
Committee

8. *Almost every
construction contract in
Canada is based on a
CCDC contract

9. Why care #2: They allow
you to tender sooner

10. Example: A retail project
that was part of a larger
program

11. The client was bundling
the refrigeration
installation

12. (So that they could get
the best price)

13. But they needed to get
started on the
construction ASAP

14. So they included a
refrigeration installation
Cash Allowance

15. The amount was
estimated based upon
previous costs

16. After they received the
pricing on the
refrigeration installation
bundles

17. The work was assigned to
the contractor

18. With no additional mark
up for overhead or profit*

19. *this won’t work if your
estimate is too low

20. Work started on site
sooner then if we had to
wait for the final price

21. Why care #3: They
provide flexibility

22. You can use Cash
Allowances to be more
flexible

23. This works best for scope
near the end of the
project

24. Like landscaping,
furniture, and security.

25. You can defer some
decisions to later in the
process

26. So if a deal is found on
used furniture you can
sod instead of seed the
lawn

27. Or if you decide to use
keys instead of swipe
cards you can afford a
patio

28. Or if you exceed your
budget you can use some
of the Cash Allowance

29. 
No patio or Sod

30. 
Staying within your
budget

31. Things to watch out for
when using Cash
Allowances

32. Watch out for multiple
specific Cash Allowances

33. This can limit your
flexibility and run against
approval thresholds

34. Example:

35. You have three Cash
Allowances

36. $10,000 for security

37. $50,000 for landscaping

38. And $140,000 for
refrigeration installation

39. For a total of $200,000

40. Contract is awarded,
contractor starts work

41. And it turns out that it is
going to take a lot more
security work

42. To connect this system to
the client’s other
buildings requires
upgrading the existing
system

43. The new security
estimate is $25,000

44. 

45. But, thankfully concurrent
to this,

46. The pricing came in for
the refrigeration
installation

47. And the layout was
revised, reducing the
number of cases

48. Which reduced the
refrigeration installation
to $125,000

49. 

50. So now we have:

51. $25,000 for security

52. The same $50,000 for
landscaping

53. And $125,000 for
refrigeration installation

54. For a grand total of
$200,000

55. BUT

56. When you tell your
contractor about this

57. He demands $2,250 extra
in overhead and profit

58. 

59. He says that managing a
security company is a lot
more work

60. So he included a 20%
markup in his bid for the
security Cash Allowance

61. And only a 5% markup
for the refrigeration
installation Cash
Allowance

62. So because we are
shifting $15,000 from 5%
to 20% markup, he wants
his cut

63. And to make it worse

64. Your client lets you know
that as the security costs
has risen by 150%

65. He needs his CEO to sign
off on the change

66. 

67. This could all be avoided

68. Make sure it is clear that
there is only one Cash
Allowance

69. Watch out for hidden
Cash Allowances

70. It can get complicated if
Cash Allowances are not
clearly identified

71. Example

72. The mechanical sub-
consultant ran out of time
prior to tender

73. And instead of designing
the reverse osmosis
system

74. A drawing note was
included that instructed
the contractor to carry a
$15,000 Cash Allowance

75. Possible outcome #1:
Waste of funds

76. 2 bids are disqualified as
they didn’t include this
Cash Allowance

77. One of these bids that
was $45,000 lower then
the awarded contractor

78. 

79. Possible outcome #2:
Contractor claim

80. The contractor awarded
the job missed this Cash
Allowance in his estimate

81. (This often happens as
missing something lowers
your price)

82. So when the
Supplemental Instruction
is issued for the reverse
osmosis system

83. The contractor submits a
claim for the work at
$17,345 + 10% markup

84. 

85. Possible outcome #3:
Double dipping

86. The contractor technically
did include the cash
allowance in his price

87. But do to staffing
changes at the
contractor’s company

88. The new representative
for the contractor submits
the claim anyways

89. And the contract
administrator isn’t aware
of this Cash Allowance

90. So the claim is approved

91. The contractor also
invoices for 100% of his
base work

92. And as the contractors
invoice doesn’t itemize
the Cash Allowance

93. He is paid for both the
Cash Allowance and the
draw

94. Which gives the
contractor $30,000 for
$15,000 worth of work

95. 

96. Summary

97. Cash Allowances can be
extremely useful*

98. *if used correctly