Allowances: tracking and reconciling them before final payment
Final payment on a restaurant fit-out stalls on one line: "Allowances — to be reconciled". The owner remembers choosing dearer light fixtures in the spring. Your coordinator finds three invoices, two selection emails and no change order.
Keep a log of every allowance and what it covers, get each selection and its difference from the allowance approved in writing before you order, and put the difference on a change order as soon as the item is bought. An allowance holds a place in the price for work nobody had chosen at tender. Its real cost arrives months later, in pieces: easy to agree while fresh, hard to prove at the end.
What an allowance covers is set by the contract. In the general conditions a Texas public university system uses, for example, an allowance by default covers materials and equipment delivered to site, with taxes and less trade discounts; handling, installation, overhead and profit stay in the contract sum, which a change order adjusts when costs are more or less than the allowance. Yours may draw the line elsewhere.
- Log every allowance when the contract is signed: amount, specification section, what it covers — material only or installed, freight, taxes, markup — and who selects.
- Date each selection on the owner's decisions-needed list.
- Price the options on the allowance's own basis, and show each one against it.
- Get the selection signed before you order: item, supplier, cost, allowance and difference.
- Reconcile when the invoice arrives, and issue the change order, addition or credit, that month, with the invoices attached.
- Report every allowance's balance monthly beside the change order log, and close each line when its item is bought.
- Keep each allowance for its item; move a balance only by a written change.
Common mistakes
- Ordering on a choice made out loud during a walk-through.
- Saving every allowance for one reconciliation at the end.
- Letting the owner see the difference for the first time on the change order.
Action list
Your allowance routine
- Log every allowance and what it covers
- Date each selection from its order date
- Show the options against the allowance
- Selection and difference signed before ordering
- Change order the month it is bought
- Balances reported monthly
Check your understanding
The owner picks a floor tile $1,800 under its allowance, but it needs a slower setting method. The allowance covers the tile only. What goes on the change order?
