An allowance is a fixed dollar amount carried in the contract for a known item whose details aren’t settled yet, like finish hardware, signage or a specific fixture package. Unlike contingency, an allowance is tied to a named scope. When the item is finally selected and bought, the actual cost is compared to the allowance and the contract is adjusted up or down, usually by change order.
Why it matters
Allowances let a job start before every selection is made, but they are a common source of disputes. The contract should say what the allowance includes (material only, or labor, freight, tax and markup too) and how overages and savings are handled.
Worked example
Illustrative: Riverside Medical Center carries a $150,000 signage allowance. The owner selects a package that costs $171,400 installed. The $21,400 overage becomes a change order. If markup is excluded from the allowance and allowed at 10% on the overage, the CO adds $2,140 for a total of $23,540.
Common mistakes
- Not defining whether labor, tax and markup are inside the allowance.
- Letting allowance reconciliation slip to closeout, where it collides with final billing.
- Treating unspent allowance as contractor savings when the contract returns it to the owner.
How os.construction handles it
We’re building allowances as their own SOV lines with a running actual-versus-allowance balance that can feed the reconciling change order. It’s being designed with founding contractors.