What is a contingency fee in a construction contract?

A contingency fee in a construction contract is specifically designed to cover unforeseen expenses that may arise during the course of a project. This fee serves as a financial buffer to address unexpected costs such as price increases for materials, changes in project scope, or other unplanned expenses that were not explicitly accounted for in the initial budget. By including a contingency fee, both the contractor and the client can have peace of mind that there are funds available to manage these uncertainties, minimizing the risk of financial strain on the project and ensuring it can progress smoothly without significant delays due to unforeseen issues.

In the context of construction projects, it is not simply an arbitrary addition; rather, it represents a prudent approach to managing the financial aspects of the contract, providing structured support where variability might occur.