Hi Richard,
Nobody retains the unused monies.
The normal and most accepted way allowances are used is as follows in an example of a $300,000 contract price, including a $10,000 appliance allowance.

Appliances come in at $8,000.
Now the contract price is $298,000.

Or, Appliances come in at $12,000.
Now the contract price is $302,000

I’m going to assume that there is a conflict that you are in the middle of, so I am going to explain to everybody the how and why of building allowances (or contractor allowances) and contractor bids

Allowances are used in new construction or remodeling to allow a General Contractor (Builder) to arrive at a contract bid (price) without having to wait for the homeowner (you) to select all the finish and/or decorative materials (and often labor) and products that most homeowners want to select. These items would include, but not be limited to, cabinets, floor covering, appliances, wall coverings, light fixtures, plumbing fixtures, etc.

They should NEVER include structural items, such as foundations, framing, windows, wiring, HVAC, insulation, concrete work, etc., as a homeowner would not know what would constitute a fair allowance for structural items.

A home owner can and should shop early in “the game” so that he or she knows how much allowances should be for decorative and finish materials and products.

Part of the following is from my “Home Building-Budget-Allowances” page on Build Your Own House.

Home Builders may supply these allowance numbers based on what they feel is adequate, but it is up to the buyer to see if the allowance is enough.

In other words, home buyers MUST shop for allowance items BEFORE signing the contract.

Carl