What is contingencyin construction?

An allowance is a placeholder dollar amount for a known scope item that is not fully defined yet, for example an illustrative $40,000 for signage that has no design. Contingency covers unknowns across the whole job rather than one named item. When the signage gets priced, the allowance is reconciled against the real cost; contingency is only drawn down when an unplanned cost actually hits.

It depends entirely on how the contract is written, so read the GMP exhibit carefully. A contractor contingency inside the GMP is controlled by the GC, usually with a requirement to notify the owner or get approval for draws above a stated threshold. Owners often carry their own separate contingency outside the GMP for scope changes, and unspent contractor contingency at closeout is frequently returned or split under a shared savings clause.

Common US commercial rules of thumb run 10% to 15% at concept or schematic design, 5% to 10% at design development, and 3% to 5% at construction documents, with a construction contingency of roughly 2% to 5% held through the build. Treat these as starting points, not rules. A repeat building type with a familiar subcontractor base justifies the low end; a renovation with unknown existing conditions justifies the high end or more.