Managing the contingency allowance

Contributed by David H. Hart, FAIA

Summary

A contingency is a predetermined amount or percentage of the contract held for unpredictable changes in the project. A contingency is a helpful risk management tool that financially prepares owners for addressing risk within the project. Contracts provide for contingencies to pay for unknown conditions such as price escalation of a product; design changes in scope or due to errors and omissions; or necessary construction changes that are realized on-site during construction. Owners should strive to provide a healthy contingency to the project to address risk related issues. If managed properly, a contingency can provide a safeguard for the designer, contractor, and owner to complete the project on budget.