Final answer:
A contractor's allowances should cover direct project costs, administrative costs, and provide for company profits, similar to how insurance payments are structured.
Step-by-step explanation:
Allowances that should cover costs incurred by the contractor can include a variety of expenses. Typically, a contractor's payments from clients are designed to cover the cost of the work performed, which may constitute the following: 1) direct costs of the project, like labor and materials, 2) administrative costs for running the contracting business, and 3) profits for the contracting firm. It's crucial for these payments to adequately represent the expected claims, the operational costs of the company, and also provide a margin for profitability. Just as insurance payments must account for claims, company running costs, and profits, a contractor's compensation should reflect the complexity and anticipated expenditures of the project they undertake.