An allowance overage is the extra cost when a client picks something that costs more than the allowance in the contract. Handle it by keeping it from being a surprise. Write the allowance down clearly, show the client the price before they commit, and bill the difference with a signed change order, not a line on the final invoice.
What you'll learn
- How to write an allowance so the client knows exactly what it covers
- When and how to tell a client a choice is going over the allowance
- How to bill an allowance overage without an argument at final payment
In this lesson
- What Is an Allowance Overage?
- Step 1: Write the Allowance Clearly in the Contract
- Step 2: Set a Decision Date for Every Selection
- Step 3: Get the Real Price Before the Client Decides
- Step 4: Tell the Client the Allowance Overage in Writing
- Step 5: Bill the Allowance Overage With a Signed Change Order
- Step 6: Track Every Allowance on Its Own Budget Line
- Step 7: Close Out the Allowances
- Allowance Overage Example
- What to Say When a Client Pushes Back
- Common Mistakes
What Is an Allowance Overage?
An allowance is a set amount in the contract for something the client has not picked yet. Flooring, light fixtures, tile and appliances are the usual ones. It lets you give a firm price today for a thing nobody has chosen.
An allowance overage is what happens when the client picks something that costs more. The allowance covers the first part, and the client pays the rest. Almost every builder runs into this on almost every job, so the goal is not to avoid overages. It is to handle them without a fight.
Step 1: Write the Allowance Clearly in the Contract
Most overage arguments start with a vague allowance. "Tile allowance: $3,000" can mean tile only, or tile plus setting materials, or tile plus labor. The client reads one thing and you meant another.
For each allowance, write down:
- The amount.
- What it includes, such as material only, or material and labor, or delivery.
- What it does not include.
- That the client pays the difference if the choice costs more.
- That an unspent amount is credited back, if that is how you work.
Put each allowance on its own line. If you want a plain starting point, read our guide to the scope of work, because a clear scope is what makes a clear allowance.
Step 2: Set a Decision Date for Every Selection
An allowance only works if the client decides in time. A late choice delays the order, which delays the job, which costs you money.
Give each selection a decision date, and tie it to the schedule. Work backward from when the item is needed on site, and add the lead time for ordering. Tell the client the date at the start, and remind them as it gets close. Our guide on how contractors handle client material selections goes deeper on this.
Step 3: Get the Real Price Before the Client Decides
Do not let the client fall in love with something before you know what it costs. When they are choosing, get the full price, not only the sticker price: the item, tax, delivery, and the labor to install it if that is not in the allowance.
A tile that looks only a little more expensive can cost much more once the setter charges extra for a harder pattern. Check before you say yes.
Step 4: Tell the Client the Allowance Overage in Writing
As soon as a choice goes over, tell the client. Write it down, with the item, the allowance, the real price and the overage.
Here is an example, with example numbers only:
- Flooring allowance: $9,000.
- Client's choice, installed: $11,500.
- Overage: $2,500.
Send that to the client before you order. "The flooring you picked comes to $11,500 installed. Your allowance is $9,000, so the difference is $2,500. Do you want to go ahead?" That is a calm, short message, and it gives the client a real choice.
Step 5: Bill the Allowance Overage With a Signed Change Order
Do not wait and add the overage to the final invoice. A signed change order is how you turn "yes, go ahead" into something you can bill.
The change order should say what the choice is, the allowance, the overage and the new total, and the client should sign it before you order. If your contract has a payment schedule, say when the extra amount is due. Our guide on how to avoid change order disputes explains why the signature matters so much.
Step 6: Track Every Allowance on Its Own Budget Line
Keep each allowance as its own line in your job budget, and update it as the client chooses. When you enter actual costs, you can see at a glance which allowances are used, which are over and which are still open.
This also protects your profit. An overage you forgot to bill comes straight out of your margin. Our lesson on how to build a job budget from your estimate shows how to set up allowance lines so overages are easy to see.
Step 7: Close Out the Allowances
At the end of the job, go through each allowance. If the client spent less, credit the difference. If they spent more and you have signed change orders, check they are all billed. Show the client one simple summary.
A clean closeout is one of the best things you can do for your reputation. If you want to sharpen your contracts and closeout habits, the NAHB education page lists courses for builders. The client sees that you were fair in both directions.
Allowance Overage Example
Here is a whole job in a few lines, with example numbers only. A client has three allowances in the contract.
- Tile: allowance $3,000. The client picks tile at $4,200 installed. Overage: $1,200.
- Light fixtures: allowance $2,500. The client picks fixtures at $1,900. Credit: $600.
- Countertops: allowance $6,000. The client picks a stone at $6,000. No change.
On paper the job went $600 over in total. But you still send one change order for the $1,200 tile overage, and you still show the $600 lighting credit at the end. If you only looked at the total, you would not know which choice caused the problem or which one to talk about early next time.
What to Say When a Client Pushes Back
Some clients will say the allowance should have covered it. Stay calm and go back to the paper. Show the contract line, what it included and the price of the item they chose.
Then offer options instead of just defending the number. They can pick something closer to the allowance, spend the extra, or cut cost somewhere else in the job. A client who gets a choice is much easier to work with than a client who gets a bill.
Common Mistakes
The first is billing an allowance overage at the end with no warning. The client feels ambushed, and you have nothing signed to point to. The second is a vague allowance that does not say what it covers. The third is ordering before the client agrees to the extra cost, which leaves you stuck with the bill if they say no.
Handle each overage early, in writing and with a signature, and the final payment stops being an argument.
Checklist
- Write each allowance as its own line in the contract, with an amount and what it includes
- State in the contract that the client pays the difference if a choice costs more
- Give the client a decision date for each selection, tied to the schedule
- Get the real price, including labor and delivery, before the client decides
- Tell the client in writing how far over the allowance the choice is
- Send a change order for every allowance overage and get it signed before ordering
- Keep the allowance on its own budget line and update it as choices are made
- Close out the allowance at the end: credit what was unspent, bill what was over
Try It in Smart Builder 360
Smart Builder 360 keeps your estimate, your job budget and your change orders in one place. Estimated vs Actual shows the cost variance on each line as you enter actual costs, so you can see an allowance running over while there is still time to talk to the client. Start a free 30-day trial, no credit card, and try it on your next job.
Start free trialFrequently Asked Questions
What is an allowance in a construction contract?
An allowance is an amount set in the contract for an item the client has not chosen yet, like flooring, lighting or tile. It lets you give a firm price now. If the client picks something that costs more, they pay the difference. If it costs less, they usually get a credit.
What is an allowance overage?
It is the extra cost when the client's choice goes over the allowance. If the tile allowance is $3,000 and the client picks tile that costs $4,200, the overage is $1,200. These numbers are an example only. The overage should be agreed and billed through a change order.
Who pays when a client goes over their allowance?
The client does, if your contract says so. That is why the contract should state it in plain words. If the contract is silent, you may end up arguing about it at the end of the job, with the client thinking the allowance was a total price.
How do I tell a client they are over the allowance?
Tell them as soon as you know, in writing, with the actual price and how far over it is. Do it before the item is ordered, not after it is installed. A client who hears early can still change their mind. A client who hears late feels trapped.
Should I use a change order for allowance overages?
Yes. A signed change order shows the client agreed to the extra cost before you ordered the item. It protects you if there is a dispute later. Our guide on how to manage change orders covers the paperwork step by step.
What if the client picks something cheaper than the allowance?
Then the unspent amount is usually credited back to the client at the end of the job, if the contract says allowances work both ways. Say this in the contract too. It builds trust, and it shows you are not using allowances as a way to pad your price.
