Juan
are Direct Expenses taken out of the NSR? and, is contingency also called an allowance?
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1. Revenue doesn’t include expenses…revenue is about how much money you take in before expenses go out the door, so no, direct expenses (I.e. staff project-related salary expenses) do not factor into net sales revenue.
2. Contingencies and allowances each attempt to reconcile something in construction with an unknown cost…but they are different animals. Contingency: the building is priced at 100M but we could find some heretofore unknown rock in the soil we’ll have to blast out. No one pays for a project that expensive with cash, so we better borrow 110M to account for those kind of “known unknowns”….Allowances: owner wants a fixed price bid on the proposed condo building while she (owner) has all the power (before the contractor is hired and bidders REALLY want to be selected), BUT she wants to give each condo occupant some choice in selecting his own kitchen cabinets. So she puts an 18k allowance for cabinets into the price for each condo. The contractor then can’t negotiate up the cost of each cabinet install with change orders associated with the time it takes to work with each occupant to create his own cabinet particulars because doing so was already in the bid.
-Michael Ermann, Amber Book creator
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