Contractor License Practice Exam

What are the additional funds set aside for items not specified in project plans called?

1. Contingencies

2. Allowances

3. Provisions

4. Reserves

The correct answer is: Allowances

The correct answer refers to allowances, which are specific budgeted amounts set aside within a construction project to cover anticipated costs that are not precisely defined in the project plans. Allowances are typically used for items whose quantities or costs are not known at the time of contracting, such as certain fixtures, finishes, or unforeseen site conditions. This makes it easier for project managers and contractors to handle potential discrepancies without needing to renegotiate the contract each time an unforeseen expense arises. In contrast, contingencies usually serve a broader purpose, to cover unexpected costs or risks that may arise during the project, rather than focusing solely on items not specified in the plans. Provisions are terms included in contracts that outline expectations and responsibilities but do not specifically equate to budget allocations. Reserves encompass a wider range of funds set aside for various purposes, which may include allowances and contingencies but are not limited to them. Understanding the distinction helps clarify why allowances are specifically the funds allocated for undefined items in project budgets.