What Is An Allowance In A Construction Contract?

January 22, 2024

A lot of things go into a construction project, and while plans and specs are helpful in defining what is required to complete the work, they can’t account for all of the unknowns that are inherent to any large scale build. This is where allowances come into play.

An allowance is a sum of money that the contractor specifies for certain items in your contract. If the actual cost of those items exceeds that amount, you will be responsible for paying it. However, if the actual costs are less than the allowance, you will get to keep the difference. Construction allowances are a great way to reduce the risk of unexpected expenses while still providing you with some flexibility in your budget.

In addition to allowing the client to customize their project, allowances also help to avoid project delays by avoiding the need for a change order, which can be time-consuming and costly. This article will explore what is an allowance in a construction contract and how you can use them to your advantage.

Creating an effective allowance is crucial to your success. You’ll need to clearly define what is included in the allowance, as well as how you will handle any overage or underage on the allowance amount. For example, if you include an allowance for carpeting, be sure to specify that you’re assuming a price per square yard and how many square yards are needed. Also, if you decide to add markup to your allowance, be sure to note the percentage so that any overage will be clear to both you and your client.


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