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Contingency Sum in Construction Contracts

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contingency money
Contingency sum

What is a Contingency?

First of all, we need to understand the general meaning of contingency before explaining the construction contingency sum in construction Contracts.

A contingency, in general, can be defined as, “A provision for an unforeseen event or circumstance.”

A construction contingency sum is generally comprised of an amount of money set aside for unforeseen items or issues as they come up throughout a project. In ther words, it is called an amount of money set aside to cover additional costs incurred for unforeseen/additional building repairs, landscaping or site works / Unexpected price fluctuations, etc.

Contingency Plan

A contingency may also be relevant to the part of a contingency plan. We can mitigate project risk using a contingency plan. for that, we need to do a risk assessment to identify the project risks.

Common project risks:

  • Adverse weather conditions
  • Industrial disputes
  • supplier failure
  • Incomplete drawings and specifications
  • Unkown site conditions
  • Natural disasters
  • Availability of building materials
  • Labor shortage
  • Unexpected increment of material cost
  • Poor project management

Contingency Sum / Money

Contingency Sum is also a money provision in construction like provisional sum and prime cost sum.

No matter the size or complexity of a construction project, there is more often than not, items or issues that arise due to unforeseen conditions, detail conflicts, design changes, etc. Depending on how the contract between the construction team and owner/architect is set up, it can dictate how these unforeseen items are handled financially. Generally, they are usually dealt with by using contingency money.

Contingency Sum is often indicated in terms of percentages. A reasonable contingency sum to allow in your budget would be 5-10% for new construction, and up to 20% for renovation or addition projects.

In the early stages of the project, the percentage of contingency sum is at its greatest because of the greatest number of possible risks. But it can be reduced with the project development and some risks have been overcome.

How can be reduced contingency during the project stages?

  • At the preliminary /Initial stage, total preliminary estimates/budget might include a 15% contingency.
  • In the elemental cost plan, 10% of the cost estimate might be included.
  • After awarding the contract, this might be 5% of the contract value as a contingency sum in the contract.

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