What should contractors include in contracts to account for unforeseen expenses?

Including contingency clauses in contracts is essential for addressing unforeseen expenses that may arise during the course of a project. A contingency clause serves as a safeguard for both the contractor and the client, providing a predefined amount or percentage of the total project cost that can be used to cover unexpected expenses without needing to renegotiate the entire contract.

This is particularly important in construction projects, where unforeseen circumstances such as hidden damages, regulatory changes, or unexpected material price increases can occur. By having a contingency clause in place, contractors can ensure that they have the necessary financial flexibility to address these issues, thereby preventing project delays and disputes.

In contrast, while a project timeline is important for keeping a project on schedule, it typically does not address financial aspects. Estimates based on prior projects can provide a helpful baseline but may not accurately reflect the unique challenges and costs of the current project. Personal guarantees, although they can provide security for lenders or suppliers, do not directly account for unexpected expenses that might emerge during execution.