ALLOWANCE SAID $18,000. FIXTURES CAME TO $27,400.
A fixture allowance is a revenue number you don't control against a cost number the owner controls. Written as one lump sum it becomes unenforceable, and the overrun surfaces at trim-out as a material variance with your buying department written across it.
On a $310,000 plumbing rough and trim, a $18,000 lump fixture allowance against $27,400 of owner-selected fixtures is a $9,400 overrun. Plumbing subs at $1M to $5M average 25 percent gross, so that job held $77,500 of gross profit and the overrun took 12 percent of it, dropping the job to 22 percent. The overrun is unrecoverable because a lump allowance gives you nothing to compare a single selection against. Itemise the same $18,000 by fixture and the freestanding tub at $4,200 against its $1,400 line is a $2,800 change order signed the day it's chosen.
Nothing here is a buying failure and your supply house did nothing wrong. The contract gave away the only document that could have priced a substitution.
This post covers one contract line and what it does to a job cost report. That page covers the three things plumbing margin is lost to and how the trade operates. Read Plumbing Operating System for the complete treatment, worked figures included.
WHY DOES A FIXTURE ALLOWANCE EXIST AT ALL?
Because on a custom residence or a high-end tenant fit-out, nobody has picked the fixtures when the plumbing goes out to bid. Rough-in is fully designed, the fixture schedule says by owner, and the plumber still has to put a number in the bid for tubs, toilets, lavatories, shower systems, sinks and trim.
So an allowance goes in. It gives the owner a budget to shop against and it gives the plumber a line to buy against, and both parties sign it knowing the fixtures will be picked later by somebody who was not in the meeting.
None of that is a problem. The trouble is how the allowance gets written, and there are two ways to write it that behave completely differently eight months later.
THE LUMP SUM, AND WHAT IT COSTS.
One line: fixture allowance, $18,000. Clean, fast, everyone signs. Now trim-out comes around on a $310,000 job and here's what the owner picked. A freestanding tub at $4,200, where the plumber's internal line was $1,400. A thermostatic shower system with three outlets at $2,800, where the line was $900. Two vanity sets and a pot filler over their lines by $1,900 between them.
Fixtures deliver at $27,400 against an $18,000 allowance. That's $9,400 over. Plumbing subs at $1M to $5M average 25 percent gross, so a $310,000 job holds $77,500 of gross profit, and the overrun took 12 percent of it. The job closes at 22 percent gross.
Now try to bill it. You have one allowance number and one delivered number, and the difference is $9,400. The GC asks which selection caused it. The honest answer is all of them and some of them a little, which is another way of saying you can't prove any single one, so the credit request dies in a meeting.
WHAT YOUR JOB COST REPORT SAYS ABOUT IT.
Here is the part that costs money on the next job. The job cost report shows plumbing materials over budget by $9,400. It doesn't say fixture selections over allowance by $9,400, because the report reads the cost code, and on most plumbing subs' books fixtures are booked inside materials with copper, PVC, carriers and trim.
So the review meeting goes looking for a buying problem. Are we getting the best price on copper. Should we be buying direct. Is the supply house holding us to list. Every one of those questions is reasonable and every one of them is about the wrong number.
Meanwhile the actual cause repeats itself on the next custom job, because nothing about the contract changed and nothing about the cost code changed. Two or three jobs in and a plumbing sub starts believing his material buying is uncompetitive, when what he has is a contract that converts somebody else's taste into his variance.
MOST SUBS MISS THIS: AN ALLOWANCE IS A DOCUMENT BEFORE IT IS A BUDGET.
The reason to itemise an allowance has nothing to do with getting the estimate closer. Your fixture guesses will be wrong either way and that's fine, because an allowance was never a prediction. It's the baseline that makes a substitution provable.
Itemised, the same $18,000 reads: tub $1,400, toilets $1,100, lavatories $1,600, shower system $900, and so on down the schedule. The owner picks a $4,200 tub. That's a $2,800 change order, priced from a line both parties signed, submitted the day the selection is made and approved before anybody orders anything.
Screenshot for whoever writes your contracts: an allowance you can't compare a single selection against does one job only, and that job is capping your revenue while your cost has no limit.
THE THREE THINGS TO PUT IN THE CONTRACT.
First, the allowance itemised by fixture type with a quantity and a unit price, attached as an exhibit. It takes an estimator twenty minutes because he already built it that way to reach the $18,000. All that changes is whether the breakdown stays in his file or goes in the contract.
Second, a selection deadline tied to the schedule, with a stated consequence. Selections due four weeks before trim-out; after that the plumber's specified fixture gets ordered and a change order covers any switch. Without a deadline the owner's indecision becomes your schedule problem and your storage problem too.
Third, a substitution clause that prices the delta both ways. If the owner picks below the line, credit it. Plumbers resist that because it feels like giving money back, and it's the clause that makes the other two enforceable. A one-directional allowance reads as a markup grab and a GC will strike it.
THE ONE THING TO DO THIS WEEK.
Split fixtures out of your materials cost code. One code for pipe, fittings and carriers, one code for fixtures and trim, and the fixture allowance is the budget on the fixture code. That single change makes the next overrun readable on the report the month it happens.
Then pull the last two custom jobs you closed and total the fixture invoices against whatever allowance was in the contract. If the difference is more than a point of gross margin, the contract template is what needs work, and no amount of buying harder will touch it.
THE SHORT LIST.
FREQUENTLY ASKED.
