At present, build paths in build specs are stored as absolute paths, unless the path happens to be in the same folder as the project. Relative paths that are a level or more up from the project folder are not supported. Modifying the XML directly does not support relative paths either.
When working on multi-developer projects, where source control root folders may be different, this can be a serious annoyance. One of the better workarounds at the moment is to build to a non-desired relative path (within the project folder) and then to run a post-build action to move the generated files to the desired location.
But it shouldn't have to be this way -- relative paths should just work. (They are supported elsewhere in projects, such as with dependencies.)
(Note: this is the follow-up to a post on the LabVIEW forum about the same issue.)
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