An allowance is an amount of money given or allotted usually at regular intervals for a specific purpose. In the context of children, parents may provide an allowance (British English: pocket money) to their child for their miscellaneous personal spending. In the construction industry it may be an amount allocated to a specific item of work as part of an overall contract.
The person providing the allowance is usually trying to control how or when money is spent by the recipient so that it meets the aims of the person providing the money. For example, an allowance by a parent might be motivated to teach the child money management and may be unconditional or be tied to completion of chores or achievement of specific grades.
The person supplying the allowance usually specifies the purpose and may put controls in place to make sure that the money is spent for that purpose only. For example, a company employee may be given an allowance or per diem to provide for meals and travel when working away from home and may then be required to provide receipts as proof. Or they are provided with specific non-money tokens or vouchers that can be used only for a specific purpose such as a meal voucher.
Types of allowance
Allowances in business
In construction, an allowance is an amount specified and included in the construction contract (or specifications) for a certain item of work (e.g., appliances, lighting, etc.) whose details are not yet determined at the time of contracting. Typically:
- the allowance amount covers the cost of the contractor's material/equipment delivered to the project plus all taxes less any trade discounts to which the contractor may be entitled with respect to the item of work;
- the contractor's costs for labor (installation), overhead, profit and other expenses with respect to the allowance item are included in the base contract amount but not in the allowance amount;
- if the section 1 costs for the item of work are higher (or lower) than the allowance amount, the base contract amount should be increased (decreased) by the difference in the two amounts and by the change (if any) to the contractor's costs under section 2.
The allowance provisions may be handled otherwise in the contract: e.g., the flooring allowance may state that installation costs are part of the allowance. The contractor may be required to produce records of the original takeoff or estimate of the section 2 costs for each allowance item.