What is construction allowance?

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A construction allowance, often referred to as a "construction contingency" or simply an "allowance," is a sum of money set aside in a construction project budget to cover unforeseen or variable costs that may arise during the construction process. It serves as a financial buffer to address unexpected expenses or changes in the scope of work that were not initially accounted for in the project's budget.
Construction allowances are typically included in construction contracts to provide flexibility in managing costs. They can be used for various purposes, such as:
1. Unforeseen Conditions: If unexpected site conditions or structural issues are discovered during construction, the allowance can be used to cover the additional costs required to address these problems.
2. Design Changes: When there are changes to the project's design or specifications, the allowance can be used to accommodate these modifications.
3. Material Price Fluctuations: Construction materials prices can fluctuate over time. If prices increase beyond what was initially budgeted, the allowance can help absorb the added expense.
4. Unforeseen Delays: Delays in the construction process can result in increased labor and equipment costs. The allowance can be tapped into to cover these extra expenses.
5. Code Compliance: If changes in building codes or regulations necessitate modifications to the project, the allowance can be used to ensure compliance.
6. Owner-Requested Changes: If the project owner requests changes or additions that were not part of the original scope, the allowance can be used to fund these modifications.

It's important to note that construction allowances should be clearly defined and documented in the construction contract to avoid disputes and ensure transparency. The contractor and the project owner typically negotiate the size of the allowance and the conditions under which it can be used.

By including a construction allowance in the project budget, both the contractor and the owner can better manage the financial uncertainties that can arise during construction, ultimately helping to keep the project on track and within budget.

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