Allowance

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An allowance is an amount of money set aside for a designated purpose.

Because money is ever a scarce and valuable commodity, the general concept of one person who has the authority to decide what to spend it on (that is, who has "the power of the purse") allowing another person to have some (for whatever reason) is often referred to as an allowance; some specific examples follow.

Types of allowance

Allowances in business

Construction contracting

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:

1. 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;
2. 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;

1. 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.

Other issues that should be considered in the contract's allowance provision are:

• may the client insist that the contractor use whomever the client wishes to do the allowance work?;
• may the contractor charge the client back for any costs arising from a delay by the client (or client's agent) in selecting the material or equipment of the allowance in question?

Allowances for children

Parents often give their children an allowance (British English: pocket money) for their miscellaneous personal spending, and also to teach them money management at an early age^[1]. Allowances can be tied to household chores, or other types of responsibilities. Allowances give children a better understanding of money management, teaches them the value of money, and gives them personal responsibility and encouragement towards independence^[2].

See also

• Per diem

References

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