Allowances Handle the Unknowns That Exist When Bids Are Submitted
A project is ready to bid, but the owner has not yet selected the light fixtures. The architect has a budget number and a specification section placeholder, but no final product selection. Rather than delay bidding until every product is selected, the project documents include a cash allowance: a stipulated dollar amount that the contractor must include in the bid for that specific item. When the owner selects the fixtures and the actual cost is known, the allowance is reconciled with the actual cost and the contract sum is adjusted. For the ARE CE, allowances appear in questions about contract sum adjustments, bidding procedures, and the architect’s role in managing open cost items during construction.
How Allowances Are Structured in Bidding Documents
Allowances are specified in Division 01 (typically Section 01 21 00 - Allowances) and referenced in the bid form. The bid form instructs contractors to include the stated allowance amount in their total bid. Since every bidder includes the same dollar amount for that item, allowances do not distort competitive pricing - all bidders are on the same basis for the allowance item. The contractor’s markup (overhead and profit on the allowance work) may be included in the allowance amount or calculated separately, depending on how the allowance is structured.
Allowance Types
Unit price allowances are stated as a price per unit (e.g., $18 per square foot for tile) where the quantity is known but the exact product is not yet selected. When the final product is selected and installed, the allowance is reconciled based on actual quantities times the unit price.
Cash allowances are lump-sum amounts for items where neither the product nor the exact quantity is known at bid time (e.g., $25,000 for artwork or signage). The allowance covers only the cost of the material or product itself - the contractor’s labor and markup for installing it may be included in the general conditions or handled separately.
Reconciling Allowances During Construction
Under AIA A201 Section 3.8, when the actual cost of allowance work is more or less than the allowance, the contract sum is adjusted by change order. If the actual tile cost is $15 per square foot instead of the $18 allowance, the owner receives a deductive change order for the difference. If the actual cost is $22, the owner pays an additive change order. The architect prepares or reviews the change order that reconciles the allowance. Allowance reconciliation can happen multiple times as different allowance items are resolved throughout the project.
Key ARE CE Exam Points
- Allowances are stipulated dollar amounts in the bid documents that contractors include in their bids without price competition on that item.
- All bidders include the same allowance amount, so allowances do not affect competitive pricing between bidders.
- When actual allowance costs are known, the contract sum is adjusted by change order for the difference.
- AIA A201 Section 3.8 governs allowances; AIA A201 Article 7 governs the change order process for reconciliation.
- Allowances are appropriate for items where selection or scope is not finalized at bid time but must be budgeted.
Study CE on AREprep
AREprep’s CE flashcards cover every concept on this exam with spaced repetition, and the practice exams mirror the real question formats so the actual test feels familiar.