Allowance Contingency

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Allowance Contingency

What is Allowance Contingency?

Allowance Contingency, A budget reserve within construction allowances to cover unforeseen scope variations or price overruns.

Description

Allowance contingency is an additional percentage or fixed amount carried with an allowance line item to absorb unexpected cost increases, such as material price spikes, design changes, or quantity adjustments, before selections are finalized. Owners and contractors typically negotiate contingency levels, ranging from 5 to 10 percent of the allowance value. Proper tracking in the schedule of values ensures transparency; unused contingency is credited back at project closeout.

FAQs

  • Why include a contingency with allowances?

    To accommodate price changes without repeated change orders.

  • Who controls the contingency?

    The contractor manages spending but must document draws for owner approval.

  • What percentage is typical?

    Five to ten percent, depending on volatility and project complexity.

  • Does unused contingency return to the owner?

    Yes, credited by change order or final reconciliation.

  • How is contingency documented?

    Separate cost code lines within the allowance ledger.

  • Can contingency cover be added to the scope?

    Minor scope adjustments within allowance intent are allowed; significant changes need a formal change order.

  • Is contingency taxed and marked up?

    The Contract should state whether overhead and profit apply to contingency spending.

Fun Fact

Fun Fact: Federal design-build contracts often cap total allowance contingency at 5 percent to control public project budgets.

CSI Code

01 21 00

NAHB Code

190