What is an Allowance in construction contracts?

An allowance in construction contracts refers to a specific amount of money set aside for items that are not yet determined or specified in the contract but are anticipated to be needed to complete the project. This approach allows for flexibility in budgeting by providing a defined sum that can cover costs as they arise for particular items that have not been fully detailed at the time the contract is signed.

This mechanism is often used when final selections of fixtures, finishes, or other components cannot be completed prior to the contract's execution. By including an allowance, the contractor can proceed with the work while accommodating later decisions regarding those unspecified items. The actual cost of the specified items can then be reconciled against the allowance during the project as selections are made. This practice helps manage financial expectations and avoids delays in the construction schedule due to indecision on specific materials or components.