In Plain English
Quick Answer
A budget reserve set aside to cover unexpected costs or scope changes during a project.
Definition
Definition
Contingency is a budgetary reserve added to a project cost estimate to cover unforeseen conditions, design evolution, and cost uncertainties. Owner's contingency covers scope growth and design changes; contractor's contingency covers field uncertainties and risk. Contingency is typically 5–15% of construction cost, decreasing as design completeness increases. Drawing down contingency faster than expected is a red flag for project financial performance.
Context
Why It Matters in Bidding
Contingency is central to how owners and contractors price risk in a bid. A contractor who builds too little contingency into a hard-bid price exposes itself to losses when field conditions differ from the drawings, while too much makes the bid uncompetitive. On the owner side, the contingency line in the project budget determines how much room exists to absorb change orders before requesting additional funding.
Example
Example
The owner held a 10% contingency on the $15M project and approved the release of $450,000 from contingency to cover unforeseen soil conditions discovered during grading.
See Also
Related Terms
FAQ
Questions Contractors Ask
How much contingency should be included in a construction estimate?
Contingency commonly ranges from about 5 to 15 percent of construction cost and shrinks as design completeness rises. A conceptual estimate at schematic design carries more contingency than a fully detailed bid set, because fewer unknowns remain. The right percentage depends on design maturity, project complexity, and the level of unknown site conditions.
What is the difference between owner's contingency and contractor's contingency?
Owner's contingency covers scope growth, design changes, and decisions the owner makes during construction. Contractor's contingency covers field uncertainties, productivity risk, and minor coordination gaps within the agreed scope. They are budgeted separately and controlled by different parties, so confusing the two leads to disputes over who funds a given change.
How does contingency relate to change orders?
Contingency is the funding source many owners draw on to pay approved change orders without increasing the overall budget. When change orders consume contingency faster than the project timeline suggests they should, it signals scope or design problems early. Tracking contingency drawdown against percent complete is a standard project financial health check.
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