Contract Contingency Sum: Everything You Need to Know
A contract contingency sum is a commonly used term in construction contracts. It refers to a specific amount of money that is included in the contract to cover any unforeseen or unexpected costs during the construction process.
A contract contingency sum is used to give both parties peace of mind, knowing that they have a cushion to fall back on if anything unexpected occurs. However, it’s important to note that a contingency sum should never be seen as a license to overspend or ignore budget constraints.
How Is a Contract Contingency Sum Determined?
The amount of money allocated for a contingency sum varies depending on the size and scope of the construction project. A contingency percentage is usually added to the total contract price, and this percentage typically ranges from 5% to 10%.
For example, if the total contract price is $100,000, and a contingency percentage of 5% is agreed upon, then the contingency sum would be $5,000.
It’s important to note that the contingency sum is not a fixed amount. If the project is completed without any unexpected occurrences, the contingency sum is usually returned to the owner or deducted from the final payment to the contractor.
When Is a Contract Contingency Sum Used?
There are various situations where a contract contingency sum may be used during a construction project. These include:
1. Unforeseen Site Conditions: This could include issues such as soil erosion, poor soil conditions, or discovery of hazardous materials.
2. Changes in Regulations: Changes in regulations or zoning laws may occur during a construction project, which may require additional work and costs.
3. Weather Conditions: Unforeseen weather conditions, such as heavy rains, snow, or hurricanes, may cause delays and require additional work to be done.
4. Changes in Scope: Sometimes, the scope of a project may change during the construction process, which may require additional work and costs.
Benefits of a Contract Contingency Sum
Having a contract contingency sum in place has several benefits for both the owner and contractor. These include:
1. Reduced Risk: A contingency sum helps to reduce the risk of unexpected expenses and delays during the construction process.
2. Peace of Mind: Both parties involved in the construction project can have peace of mind knowing that they have a contingency sum in place to cover any unforeseen situations.
3. Flexibility: A contingency sum gives the contractor flexibility to make changes to the project scope or design without having to renegotiate the contract.
A contract contingency sum is an essential component of any construction contract. It provides a safety net for both parties involved in the construction project and helps to mitigate the risk of unexpected expenses and delays. By having a contingency sum in place, owners and contractors can work together with peace of mind, knowing that they’re prepared for any unforeseen circumstances that may arise.