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Estimating & Bidding

Allowance

In Plain English

A budget placeholder built into the contract for items whose final cost is not known yet.

Definition

An allowance is a specified sum included in the contract for a defined scope item whose exact cost cannot yet be determined at bid time. The contractor includes the allowance amount as provided and adjusts the contract sum if actual costs differ. Common allowances cover items like owner-selected fixtures or unknown subsurface conditions.

Why It Matters in Bidding

Allowances let bidders submit a complete, comparable price even when a scope item like owner-selected finishes or unknown subsurface work is not yet defined, keeping every bid on equal footing. Because the allowance amount is fixed by the documents, estimators carry the same number, but they must understand whether labor and markup are included in the allowance or added separately, since misreading this shifts real money. When actual costs differ, the contract sum is reconciled through change orders, making allowances a common source of post-award adjustment.

Example

The bid documents set a $25,000 allowance for owner-selected plumbing fixtures, and the estimator confirmed the specification clarified that installation labor was carried outside the allowance so it would not be double-counted.

Related Terms

Base BidChange OrderBid FormScope of Work

Frequently Asked Questions

An allowance covers a specific, identified scope item whose price is not yet set, like fixtures the owner has not selected. A contingency is a general reserve for unforeseen costs across the project. Allowances are reconciled against actual invoices for that item, while contingency is drawn down as unexpected issues arise.
It depends on how the specification is written, which is why estimators read the allowance language carefully. Some allowances cover only the purchased material, with installation labor and contractor markup priced separately in the base bid. Others are all-inclusive. Misreading this is a frequent error that causes either double-counting or an under-priced bid.
Once the actual cost of the allowance item is known, the contractor documents the real expense against the carried allowance amount. If the actual cost exceeds the allowance, a change order increases the contract sum; if it is less, the contract sum is reduced. This keeps the owner paying for actual scope rather than an estimate.

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