A construction contingency is a reserve fund built into a project budget to absorb the cost of unforeseen conditions, scope clarifications, and minor change orders without requiring formal contract amendments. It is typically expressed as a percentage of contract value (5 to 15% on most commercial work, lower on simple residential, higher on complex renovations or unknown-condition projects).
Contingency is distinct from markup or profit. It is owner-funded reserve held against actual unforeseen costs. Unused contingency at substantial completion typically returns to the owner, reduces the contract value, or rolls into project upgrades depending on the contract terms. Owner-controlled contingency is the most common structure; contractor-controlled contingency exists but raises owner concerns about transparency.