Add Contingency & Total
You have estimated the work you know the project requires.
Now account for what you do not yet know.
Every construction project contains some uncertainty. Conditions may exist that cannot be seen, information may still be incomplete, or something may happen during construction that could not reasonably have been identified during Planning.
Your Estimate needs to account for that uncertainty.
That is the purpose of contingency.
Understand Contingency
Contingency is an amount of money set aside for unknown conditions.
It is not an allowance for work you already know you want. Known work belongs in the Project Scope and should be included in the Estimate.
Contingency is for costs arising from conditions you cannot see, do not know, or cannot reasonably foresee.
The greater the uncertainty, the greater the contingency should generally be.
Contingency does not mean your Estimate is unreliable. It acknowledges that even a well-developed Estimate cannot make an uncertain condition certain.
The objective is not to eliminate contingency. It is to reduce unnecessary uncertainty by developing better information.
Identify What You Do Not Know
Think about where uncertainty exists in your project.
In new construction, unknown conditions are often underground.
In renovation work, they are frequently concealed behind walls, floors, ceilings, or other existing construction.
Other uncertainty may result from incomplete information about existing conditions or parts of the Scope that cannot be fully investigated until construction begins.
Ask:
What conditions could affect the cost of this project that I cannot presently verify?
Do not use contingency as a substitute for information you could reasonably obtain.
If an important condition can be investigated now, consider investigating it.
Reduce Uncertainty with Better Information
Information can reduce uncertainty.
For new construction, investigation may include activities such as:
- surveys;
- soil information;
- underground utility investigation;
- ground-penetrating radar;
- exploratory drilling or cores; and
- other testing appropriate to the site.
For renovations, useful information may include:
- existing or as-built drawings;
- field measurements;
- exploratory openings;
- material testing;
- investigation of concealed conditions; and
- information about previous construction or modifications.
Investigation has a cost, but it can replace an unknown condition with information before construction begins.
That can improve the Estimate and may reduce the amount of contingency necessary to account for that condition.
There is rarely enough information to eliminate uncertainty completely.
Establish the Contingency
Calculate contingency as a percentage of the estimated project cost.
Contingency generally ranges between 5% and 20%, with most projects falling between 10% and 15%.
The appropriate amount depends primarily on:
- the type of project;
- the amount and quality of information available;
- the conditions that remain concealed or unknown; and
- the investigation or testing already completed.
Use the following table as a guide.
Contingency Guidance
| No Information | With As-Built Drawings | With Investigation / Testing | |
|---|---|---|---|
| New Construction | 15% | N/A | -5% |
| Renovation | 15% | -5% | -5% |
Start with the contingency appropriate to the project and available information, then adjust it as better information reduces specific uncertainties.
Very few projects should proceed without some contingency.
Calculate the Contingency
Use the contingency percentage you selected to calculate the amount to include in the Project Budget.
Use the following calculation:
((1 + Contingency Percentage) × Contractor Total Labor + Material Cost)
= Contingency Amount
Record the contingency and the basis for selecting it on the Project Budget form.
Do not record only the percentage.
Make a note of the significant unknown conditions the contingency is intended to address and the information you used to select the amount.
That record will help you understand why the contingency changes if better information becomes available later.
Update Contingency as Information Changes
Contingency should change when the uncertainty changes.
If an investigation reveals a condition, it is no longer unknown.
That does not necessarily mean the cost disappears.
Instead, the condition can now be defined, added to the Project Scope, estimated, and included as a known project cost.
For example, suppose you carry contingency because you do not know what is behind an existing wall.
Later, an exploratory opening reveals that structural work will be required.
The structural work should no longer remain hidden inside contingency.
Update the Project Scope, estimate the structural work, add its cost to the Estimate, and reconsider the contingency based on the uncertainty that remains.
The money has moved from:
unknown condition → contingency
to:
known condition → Scope → Estimate
That is progress.
As assumptions become information, update the Estimate.
Total the Project Costs
Now total the costs you developed in Complete the Project Cost.
Add together the applicable:
- material costs;
- labor costs;
- equipment costs;
- subcontracted work;
- delivery and purchasing costs;
- fixtures, furnishings, finishes, and equipment;
- owner-supplied and custom items;
- insurance;
- contractor overhead and profit;
- permit fees;
- inspection fees;
- final cleaning; and
- other costs required to complete the Base Scope.
The sum of these costs is your Total Hard Cost.
Record the Total Hard Cost on the Project Budget form.
Add Contingency
Calculate the contingency separately and add it to the Total Hard Cost.
This gives you the potential cost of completing the Base Scope while maintaining money in the Budget to address unknown conditions.
Keep the contingency separately identifiable.
Do not distribute it among the individual Scope items or treat it as money available for additional work.
It exists because uncertainty still exists.
Keep Adds and Deducts Separate
Do not roll your Adds and Deducts into the Base Scope total.
You need to be able to see what each choice costs.
Your completed Estimate should show:
Base Scope
Estimated cost of the work you currently consider essential
Contingency
Amount held for remaining uncertainty
Adds
Separately priced work or choices you may want to include
Deducts
Separately priced changes you may be willing to make to reduce cost
Keeping these numbers visible allows you to understand how different Scope choices affect the project without rebuilding the Estimate every time you consider an option.
Review the Estimate
Before moving on, review the Estimate against the Project Scope and Project Diagrams.
Make sure:
- every Base Scope item is represented;
- quantities reflect the information currently available;
- waste has been accounted for where appropriate;
- labor and material pricing has been included;
- other project costs have been included;
- assumptions and estimating sources are documented;
- contingency reflects the uncertainty that remains;
- Adds and Deducts remain separately identifiable; and
- the Estimate, Project Scope, and Project Diagrams describe the same project.
If something does not align, update it before continuing.
You are not looking for a permanently final number.
You are establishing the best representation of the project cost that the information currently supports.
Your Estimate Is Ready
You now have something you did not have when you started:
a financial representation of the Project Scope.
You know what the Base Scope is estimated to cost.
You have accounted for uncertainty.
And you know the estimated financial effect of the Adds and Deducts you are considering.
Now you can compare those costs with the financial target you established earlier and decide what the project should actually include.
That is the next step.
🧭 Next: Set Your Budget
In Set Your Budget, you will compare the Estimate with your Budget range, evaluate the cost of your choices, and adjust the Scope and Budget as necessary until they represent a project you are willing and able to pursue.