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Cost control

Managing contingency without spending it early

By Review.LivePublished 3 min readHow we write

Three months into a sixteen-month parkade job, the superintendent asks at the budget review to take $60,000 from contingency for a faster hoist. The same fund has already paid for an item missed in the waterproofing price and for winter heating. The riskiest work, the post-tensioned decks, has not started.

Two people at a round table go over a document on a clipboard, one pointing to a line with a pen.
Photo: Amina Atar on Unsplash

Contingency is money carried for events that are uncertain but likely, in total, to add cost: estimating errors and omissions, minor price changes, design development within the scope. It usually excludes major scope changes, and it differs from an allowance, which covers a known requirement whose details are not yet defined. It is expected to be spent, but on those events: spent early on convenience, it is gone just when the project, further along, has fewer other ways to absorb a problem.

  1. Tie the contingency to named risks, ideally from your risk register: a description, an amount, and when you will know whether it happened.
  2. Keep it on its own line, not spread through the cost codes where overruns absorb it unseen.
  3. Set a draw rule: a draw needs a named risk or estimating gap that occurred, the amount, the evidence and the approval of one named person.
  4. Log every draw: date, risk, amount, reason, approver and remaining balance.
  5. Release amounts for risks that have passed, on purpose and on the record.
  6. Hold a minimum for the risks still ahead. US federal transit oversight guidance, for example, has project sponsors prepare drawdown curves that set the least contingency to keep at each stage.
  7. Report the balance monthly beside the forecast, with the risks it still covers.

Common mistakes

  • Spreading contingency through the cost codes.
  • Paying for owner scope changes from contingency instead of pricing a change order.
  • Using it for improvements no risk called for.
  • Drawing without a record, so no one knows what the balance is for.

Action list

Set up the contingency log

  1. List the risks the contingency was priced for, with amounts
  2. Move contingency to its own line
  3. Write the draw rule and name the approver
  4. Log every past draw with its reason
  5. Release amounts for risks that have passed
  6. Report the balance and remaining risks monthly

Check your understanding

Why is paying for a faster hoist from contingency a problem, even if the hoist saves time?

Show the answer
The hoist is a choice of method, not a risk that occurred, so it should be judged on the time-related costs it saves, not paid from money set aside for uncertain events. Spending contingency early also leaves less for the risks still ahead.

Sources

  1. Recommended Practice 10S-90: Cost Engineering TerminologyAACE International · accessed
  2. Oversight Procedure 40: Risk and Contingency Review (October 2023), section 6.5.2Federal Transit Administration, U.S. Department of Transportation · United States, federally funded transit capital projects (shown as an example of practice) · accessed

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