Understanding Contingencies, Allowances, and Change Orders in Commercial Construction
For many business owners, navigating a commercial construction budget can feel overwhelming—especially if it’s your first project. Understanding why your construction estimate includes fees for “unknown items” is key to avoiding surprises and keeping control of your project costs.
Contractors rely on extensive planning, estimating systems, and industry experience to establish an initial budget. However, even the most exact construction cost estimate can’t account for every detail before work begins. Unexpected site conditions, evolving design decisions, and owner-driven changes are all common in commercial building projects.
To help manage these variables, contractors include budget categories—such as contingencies, allowances, and the potential for change orders—that protect the owner and support a smoother project experience. These are not unnecessary markups; they are proactive tools for construction risk management and budget stability. Any unused funds are returned to the owner.
Below is a clear breakdown of what each term means and why it matters for your project.
What Are Contingencies in a Commercial Construction Budget?
A construction contingency is a built-in budget reserve—typically 5–10% of the total project cost—used to address unpredictable issues that arise during design or construction. Examples include:
Why Contingency Matters
A contingency provides essential financial protection, preventing delays and minimizing the need for more funding requests. A professionally managed contingency ensures:
What Are Allowances in Construction Pricing?
An allowance is a placeholder budget amount for known materials or components whose exact cost cannot be determined at the time of estimating. While contingency covers unknown risks, allowances cover known scope with unknown final pricing.
Common allowances in commercial building projects include:
Allowances keep the project moving while giving the owner time to choose selections. Once actual pricing is obtained, the contract is adjusted—either as an increase or a credit. This keeps transparency in the construction budgeting process.
What Is a Change Order in Commercial Construction?
A change order is a formal document that revises the original construction contract by modifying the scope of work, project cost, or construction schedule. Change orders occur when:
Although change orders are not a standalone line item on the original estimate, their cost impact is typically covered by the project’s contingency fund, which keeps the overall construction budget intact.
Change orders ensure that any adjustments are documented, authorized, and understood by all parties—including the owner, contractor, and architect/engineer.
Understanding contingencies, allowances, and change orders helps business owners make informed decisions and lowers much of the stress associated with commercial construction planning. These budget tools are not unexpected fees—they are strategic safeguards that ensure transparency, protect your investment, and keep your project on schedule.
When you partner with a contractor who prioritizes clear communication and proactive budgeting, you gain confidence in your project from start to finish. With the right planning and the right team, your construction experience becomes predictable, efficient, and aligned with your goals—the Wolgast Way.