Contingency is the honest admission that a renovation estimate is a guess about a house nobody has opened. It's a line in the budget, not a line in the price: on a fixed-price job it's the contractor's cushion inside the margin, and on a cost-plus or GMP job it's an agreed reserve the client owns until it's spent. Either way it exists for unknowns inside the scope, not for changes to the scope.
A worked number
Kitchen remodel, direct cost $47,700, 8% contingency $3,800. The wall comes off and the subfloor needs $2,100 of repair: contingency covers it, the price holds, the margin drops from 29.9% to 26.8%. Then the client asks for a pantry wall: that's a change order, not contingency, and if it comes out of the reserve there's nothing left when the electrical panel fails inspection.
The mistake it hides
Contingency that isn't tracked. A reserve nobody records against is a reserve that gets spent twice, and a reserve spent on scope changes is a change order the contractor gave away. Record every draw on it with the surprise it paid for.
In Obra
Budget contingency as its own line on the project, log the costs it absorbs against it, and keep change orders on the contract side. The budget vs. actual tracker shows how much reserve is left while the walls are still open.