Allowance

Definition

Allowance: A specified sum included in the contract documents to cover the cost of a particular item or work that will be selected or specified at a later date, such as carpeting or hardware.

Purpose

The primary purpose of an allowance in a contract is to provide flexibility in the budgeting and selection process for specific items or work that cannot be precisely determined at the time the contract is signed. This allows for adjustments to be made once the exact specifications, quantities, or selections are finalized. Allowances help in managing cost uncertainties and ensuring that the project stays within budget while accommodating future decisions regarding certain elements.

Examples of Use

1. Carpeting: A contract for building a new office includes an allowance for carpeting, specifying a sum that will cover the cost once the final selection of carpet type and color is made.
2. Kitchen Appliances: In a home construction project, an allowance is provided for kitchen appliances, allowing the homeowner to choose specific models and brands later within the allocated budget.
3. Lighting Fixtures: A commercial building renovation includes an allowance for lighting fixtures, enabling the client to select the styles and specifications at a later stage.
4. Landscaping: An allowance for landscaping is included in a contract for a new housing development, covering the cost of plants, trees, and other outdoor features that will be decided upon completion of the construction.
5. Bathroom Fixtures: In a hotel refurbishment project, an allowance is set for bathroom fixtures, giving the designers flexibility to choose the fittings that match the overall design scheme.

Related Terms

• Contingency: A sum included in the contract budget to cover unforeseen costs or changes during the project.
• Provisional Sum: An estimated amount included in a contract for work that cannot be fully detailed or specified at the time of contract signing.
• Unit Price: A specified price per unit of measure for materials or work, used when quantities are uncertain at the time of contracting.
• Bid: A proposal submitted by a contractor or supplier to undertake specified work or supply materials at a certain price.
• Change Order: A formal document authorizing a change in the scope of work, cost, or timeline in the original contract.

Notes

• Allowances should be clearly defined in the contract documents, specifying the items covered and the amount allocated for each.
• It's important to manage allowances carefully to avoid cost overruns; actual costs may differ from the allowance if the selected items exceed the budgeted amount.
• Any unused portion of an allowance may be credited back to the client or reallocated to other aspects of the project as agreed upon in the contract terms.