Allowances and alternates: where bids hide risk

How allowances shift cost risk to the owner

An allowance is a placeholder for work or materials that are not fully selected, designed or priced when the bid is submitted. It can help a project move forward, but it is not the same as a fixed price. If the actual cost exceeds the allowance, the owner generally faces an added cost, subject to the contract terms.

Before comparing bids, identify what each allowance includes. Material, labor, delivery, tax, equipment and contractor markup may be treated differently. Two bids can show the same allowance amount while assigning very different costs outside it.

• South Carolina Department of Labor, Licensing and Regulation
• South Carolina Legislature
• International Code Council

How alternates affect bid comparisons

An alternate is a defined addition, deletion or substitution that the owner may accept or reject. Alternates are useful when a decision depends on budget, but they need a clear scope and a stated effect on contract time.

Compare the base bids first, then evaluate each alternate on the same scope. Confirm whether accepting an alternate changes related work elsewhere in the bid or creates design, permitting, procurement or scheduling consequences.

Build a bid-leveling sheet before award

Place each bidder's base price, allowances, alternates and exclusions into one comparison sheet. Use the same scope categories for every bidder. Where one contractor carries a fixed amount and another uses an allowance, flag the difference rather than treating the totals as directly comparable.

Reconcile the sheet against the drawings, specifications and written bid instructions. Items that appear in the documents but not in a bid should be clarified in writing. The goal is not to force identical pricing; it is to show where each bidder assigned the cost and risk.

Convert uncertainty into written contract terms

Before signing, replace allowances with fixed prices where selections and scope can reasonably be completed. For allowances that remain, state the amount, covered scope, basis of adjustment and treatment of unused funds. The contract should also explain whether overhead, profit, tax or other charges apply to an overage or credit.

Accepted alternates should be incorporated into the contract documents, not left on a bid form as a side note. Record the revised contract sum, scope change and any schedule effect. Unaccepted alternates should also be identified so there is no later disagreement about what the base contract includes.

What an allowance does and does not cover

Allowances are commonly used when a selection, quantity or field condition remains unresolved. They create a temporary budget value, but they do not resolve the underlying scope. The owner should know what event will replace the allowance with an actual cost.

A useful allowance description names the item, expected quantity or quality level, and included cost components. A vague label such as “fixtures allowance” leaves too much room for different assumptions about procurement, installation and related work.

Questions to resolve during bid review

Ask each bidder to identify assumptions, exclusions and owner-supplied items. Confirm who is responsible for design coordination, permits, testing, delivery, storage and installation where those responsibilities are not clear from the bid.

Also ask when selections must be made and how delayed decisions affect procurement or the schedule. Written answers should become part of the final contract documents when they change or clarify the bid.

How allowances and alternates change a bid

An allowance is a placeholder amount for work, materials or equipment that has not been fully selected or defined. The final contract cost is adjusted when the actual price is known, often with taxes, delivery, labor, overhead or fee added according to the contract. A low allowance can make a bid look competitive without reducing the eventual cost.

An alternate is a defined addition to or deduction from the base bid that the owner may accept or reject. Alternates are useful for testing scope choices against the budget, but only when the base scope and each alternate are clearly described. If one bidder includes related labor, supervision and schedule effects while another does not, the alternate prices are not directly comparable.

Normalize the bids before choosing a contractor

Build a comparison sheet that lists every allowance and alternate beside the corresponding amount from each bidder. For allowances, record what is included, the assumed quantity or quality level, whether labor is included, and what markup applies to any difference. For alternates, confirm the exact scope, exclusions, tax, fee, bonds, insurance and schedule effect.

Then adjust the bids to a common basis. Replace unusually low allowances with one reasonable owner-approved assumption, identify missing alternates or scope, and separate true price differences from differences in interpretation. Keep both the submitted total and the normalized total visible so the owner can see where the apparent low bid depends on unresolved costs.

Questions to resolve before signing the contract

For each allowance, ask what product, quantity, supplier quote or design assumption supports the amount; whether installation, freight, tax and waste are included; and how credits or overruns will be calculated. Also confirm when selections must be made and who bears added cost caused by a late owner decision, unavailable material or incomplete design information.

For each alternate, confirm whether accepting it changes other work, general conditions, permitting, design fees, procurement dates or substantial completion. Record accepted alternates in the agreement and remove rejected ones from the contract sum. Any unresolved item should remain on an open-issues log with a responsible party and a decision date.

Account for local approvals and site conditions

In Charleston and across the Lowcountry, do not treat permitting and review as one generic allowance. The applicable process may differ by municipality, county, historic district, architectural review body, utility provider or owners association. The bid should identify which fees and submissions are included, who prepares supporting documents, and whether revisions or resubmittals are excluded.

Site-related allowances also need a stated basis. Demolition quantities, unsuitable soils, groundwater management, utility conflicts, tree protection and flood-related requirements may remain uncertain until investigation or design is complete. Separate known scope from true unknowns, define how quantities will be documented, and state the unit prices or pricing method that will govern adjustments.

Common questions

Should every allowance be removed before signing?

Not necessarily. An allowance may remain when a selection, quantity or field condition cannot reasonably be finalized, but its scope and adjustment method should be written clearly. Replace it with a fixed price when enough information is available.

What happens if the actual cost is below the allowance?

The contract should state how unused allowance funds are credited and whether any markup or other adjustment applies. Do not assume the full difference automatically returns to the owner without checking the contract language.

Can an alternate change the project schedule?

Yes. An alternate may affect design coordination, permitting, procurement, sequencing or installation time. Ask the bidder to state the schedule effect before the alternate is accepted.