Construction Contingency

What is construction project contingency?

Construction project contingency is a budget reserve held by the owner (and sometimes separately by the contractor) to absorb unforeseen costs during construction. It is distinct from contractor overhead and profit, and from owner-held project development contingency.

Setting the right contingency amount

Contingency levels should reflect project-specific risk. Typical ranges by design completeness at tender:

• Design-build or early tender (30% design): 15–25% of construction contract value
• Design-bid-build at 60% design: 10–15%
• Design-bid-build at 100% design: 5–10%
• Renovation and fit-out (high uncertainty): 15–30% or more

Tracking contingency consumption

Owners should track contingency consumption in real time — not just approved changes, but also pending changes and identified risk items. A project that has consumed 80% of its contingency with 40% of construction remaining is in a significantly different position than a project with the same burn rate but only 10% remaining construction.

Protecting contingency through change order review

Rigorous change order review is one of the most effective ways to protect contingency. Every dollar recovered through markup verification, entitlement challenge, or documentation deficiency is a dollar preserved in the owner's contingency reserve.