Contingency Allowance in Construction Contracts?
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Contingency allowance is provided in construction contracts to allow for miscellaneous unforeseen costs which cannot be classified under any other head, but is necessary for successful completion of the project. In construction contracts usually 3 to 5 percent of contract value is provided as contingency allowance. An example of such unforeseen cost is price escalation. If there is a saving in the contingency allowance, then this amount can be used for execution of extra items of work. That means when variation claims are raised, it is common that the employer will cancel the contingency allowance against variation claims, and pay the contractor.
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