So that raises the question of what constitutes a change order? In my experience, all change orders were papers I had to sign, but I've never worked with allowances, too. Should I ask for documentation of all expenses, such as tile?

Anything outside of the allowance is a change. Choosing products within the allowance is not a change order.

Is that a legal definition? I'd like to know more.

See if this helps. change order

As best I can tell from the linked document, change orders must be in writing. It doesn't mention allowances.

I don't think they have to be in writing unless your contract specifies that all change orders will be written. I made quite a few changes to my original agreements when I did my kitchen that weren't in writing, but they were still changes that resulted in additional charges to me.

A CO revises the work, time and contract price of a written contract and therefore must always be in writing and signed by both parties. It is often confused with the Change Proposal that precedes it. A Change Request from the owner may preceded the CP if the change is extensive. The documents should be numbered. When the CP is approved the work or purchase can proceed.

The CO can be issued later and can include more than one CP. The CO may simply refer to the approved CP and record the amount and time change thereby revising the original contract. It's not an "order" to do work although home builders may skip the owner protection of the CP to simplify paperwork. This should all be spelled out in a properly written contract but is often omitted or abbreviated.

An allowance is a place holder within a contract price. The actual price must be documented by the GC in a CP and the effect on the contract price and time established by a CO even if it is the same.

The reason this can be confusing is instead of the owner payments being treated as base price plus extras, contracts require the base price to be changed. This allows the terms of the contract to apply to the extras and deductions. In other words contracts must be formally revised by a CO instead of attaching addenda, etc.

Handling of allowances/change orders will depend on your specific contract language.

From the buyer's perspective, ideally you would pay no change order fees and any difference from the allowances will be debited/credited accordingly. In other words, if your tile allowance is $10/sq ft and you choose a $20/sq ft tile, you will pay the difference, but if you choose a $5/sq ft tile you would receive a credit.

Most unfavorable to a buyer would be one-way change orders with a fee; i.e. you pay a fee every time you exceed an allowance, in addition to the difference, and you get no credit for staying within the allowance.

If the draft contract does not specify the arrangement, it would be a good idea to agree to a written modification of the contract language so that everyone is on the same page.

If a contract specifies a 15% markup on labor and materials, and certain items are below allowance such that they generate a credit, should 15% also be added to the credit? (Please go easy on math-related answers.)

A GC doesn't do additional work to price an Allowance later instead of in the original bid so the cost of the inevitable CO should not include a fee. However, since the Allowance is a miniature Cost of the Work contract the GC should be allowed to mark up the additional sub cost by an agreed upon percent and use agreed upon rates for his work force. A decrease in cost is another matter and should be negotiated before signing the contract.

renovator8, I appreciate your efforts to explain, although I don't follow your last comment. I've never had a contract with allowances before, only owner-furnished items I bought myself, and all change orders had to be signed by both parties. I'll try applying examples to make this more concrete:

The contract doesn't define change order, and I understood it to mean written. There were none by that definition. I did agree to pay more for certain items, and I'm not questioning related charges. Some categories (e.g., tile) combined materials and labor; I asked for a breakdown in some cases, so I would know if I was close to the allowance. I was told the tile guys were being paid by the job, so only excess material costs should affect the total, right? Am I due invoices for all charges? Materials and labor? The contract doesn't promise those.

I deleted several costly items and received credits (e.g., they used my paint for some areas). Would I then be owed 15% in addition to the paint credit? Paint allowance wasn't itemized to each area.

I think it depends on your contract.

When we were under allowance we got an adjustment/credit, so that the amount to the builder was lower once the percentage was applied to the remaining number. The reverse was true as well.

Right, so it seems that he's applying the percentage only when it's in his favor. I just want to be on solid ground if I complain.

Pay your lawyer for his legal opinion. He's the one that read it in the beginning and approved for you to sign it so he's the only one privy to the pertinent specific written language that you agreed to.

She did not read or approve my contract, as I suspect you thought, and I am also privy to the language. I provided pertinent language here; anyone I share it with is privy.

Much of this depends on the wording of your contract. There are some standard items that most contracts have and we can help with that, but generally contracts can be modified any way people want as long as it is entered honestly and is not in direct violation of state law.

Some contractors net allowances, others don't. Some contractors will credit allowance plus fee, others will not. If it is not spelled out in the contract then I doubt the guy is going to give you the discount plus 15%. Believe it or not contracts are not that good at equitable solutions nor protecting the interest of parties who are wronged. They are very good at mitigating damages for injured parties.

Are you saying "parties who are wronged" and "injured parties" are not the same? Or just that they're good after the fact only?

The legal meaning of privy is limited to the parties signing the contract although I don't know why it would be relevant.

Allowances should be for materials unless including labor is unavoidable and then it is best to include a labor rate in the base contract

Allowances are like small cost plus contracts Inside lump sum contracts therefore the actual costs are reimbursable plus markups. To do that the actual costs should be verified with receipts.

The larger the job the greater the likelihood the contract will describe these procedures but for renovations I would not be surprised if the contract was just a dressed up work proposal.

I am saying that very rarely is either party in a contract dispute made whole. Most contracts are very good at limiting damage. Even when one party clearly wins, attorney fees can cost you more than the award, and assuming you are in the U.S. then each party pays their own attorney fees. My original reason for pointing this out is, if we are talking a few thousand dollars then by all means pursue it, but on the other hand if you are talking a few hundred dollars I would not bother.

As for change orders...they too are complicated. There are all kinds of rules for change orders but they are still governed by unjust enrichment laws, which basically say that you can't get a boon from the work of others if they did the work with a reasonable expectation of payment, nor can you knowingly permit work that you later refuse to pay based on no agreement.

What you need to know is that the resolution of an Allowance is always an addition or deletion to the contract sum by change order. How the amount is calculated is by negotiation if it isn't in the contract.

The difference between an Allowance and any other change is that it has a place holder amount in the contract sum.

Where you can get gouged is the subcontractor or supplier markup. Avoid labor in an Allowance by establishing installation methods and quantities in the contract. Even a guess at the number of recessed lights is better than nothing.