Allowance vs contingency
What is the difference between an allowance and a contingency?
An allowance is money for scope you know about but cannot yet price — the doors will have hardware, and the selection is pending. A contingency is money for scope you cannot yet name at all: unforeseen conditions, coordination nobody anticipated, the accumulation of small surprises. An allowance points at something specific; a contingency points at nothing.
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Reviewed by Eric Collin · President and Founder of Firmo Construction, 20+ years in preconstruction and bid evaluation
Known scope, unknown price — versus unknown scope
An allowance names the work. Two thousand dollars for door hardware means the doors are getting hardware, the hardware is in the contract, and only the selection and therefore the price is open. It is reconciled later against the actual cost, up or down.
A contingency names nothing. It is a percentage held against events that have not been identified, and it is drawn down as they occur. If the project runs cleanly, it is not spent.
That difference determines what happens to the money. An unspent allowance is a credit on a defined line. An unspent contingency is a question about whose money it was in the first place — owner, design, or contractor contingency are three different pools with three different answers.
The mistake that costs money
The expensive error is using one as the other: carrying a contingency because the bids are hard to compare, rather than resolving why they are hard to compare.
A gap between bidders is not an unknown unknown. It is a specific piece of work that specific bidders did or did not carry, and it can be identified by reading their scope letters against each other. Covering it with a contingency percentage hides it rather than closing it, and the gap is still there when the contingency is gone — now as a change order with no competitive pressure behind it.
The reverse error is milder but real: an allowance set for work that is genuinely undefined becomes a number nobody can reconcile, because there is no specification to price it against at closeout.
How each should appear on a bid
An allowance should be visible and itemized, with what it covers stated. An allowance buried inside a lump sum cannot be reconciled, and neither side can tell later whether the work was included or absorbed.
A contingency generally should not appear in a subcontractor's bid at all. Where a bidder has carried one privately — and many do, particularly against a liquidated damages clause or a schedule it does not control — it shows up as a price that seems high for the scope, not as a line you can read.
When comparing, an allowance is a leveling adjustment you can make precisely: set every bidder to the same allowance figure and the remaining difference is real. A suspected contingency is not adjustable, only discussable.
- Allowance
- An allowance is a fixed sum carried in a bid for work that is not yet defined well enough to price, to be reconciled against the actual cost later.
- Contingency
- A contingency is money carried in a budget for costs that are expected to arise but cannot yet be identified, as distinct from a specific scope whose price is not yet known.
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