When a contract includes an "allowance," and the work for that allowance is less than anticipated, what must the contractor do?

In a contract that includes an "allowance," if the work performed amounts to less than what was initially anticipated, the contractor is generally obligated to pass on the savings to the owner. This practice is rooted in the ethical standard of fairness and transparency that governs contractual relationships. When an allowance is set, it assumes a certain cost that the owner is prepared to cover. If the actual costs are lower, the owner should benefit from this reduced expenditure rather than the contractor retaining the savings as additional profit.

Passing on the savings also fosters trust between the contractor and the owner, ensuring that both parties can maintain a positive working relationship. This approach aligns with the principles of good faith in contracting, wherein both parties are expected to act honestly and fairly to uphold the spirit of the agreement.

Contrasting with other potential answers, the contractor has no ethical or contractual basis to inform the owner of additional costs when costs are actually lower; adjusting the contract price with no obligation may create a perception of unfairness; and keeping the savings as profit goes against the established obligations of a transparent contracting relationship. Thus, transferring the savings to the owner underlines the contractor’s commitment to fulfilling their responsibilities and maintaining equitable dealings.