Proposals · Glossary

What is a contingency in construction?

A contingency in construction is an amount added to a cost estimate or budget to cover risks that are known to exist but cannot be priced precisely, such as unexpected ground conditions or design changes. It is not tied to one item; it is drawn on only if a risk happens, and unused contingency stays with whoever holds it.

Every building project has surprises. The question is not whether to plan for them but who carries the cost, how big the buffer should be, and whether the client can see it.

Nuwan Madhusanka · Co-founder

4 min read · Published 21 October 2026

Contingency, provisional sum and prime cost compared
Item	Covers	Who usually holds it	Shown to the client
Contingency	Unknown risks across the job	Builder inside the price, or owner in the budget	Often not, unless it is an owner's contingency
Provisional sum	Defined work not yet priceable	Adjusted to actual cost	Yes, itemised
Prime cost item	Supply of an item not yet chosen	Adjusted on selection	Yes, itemised
Escalation allowance	Price rises over time	Builder or owner by contract	Sometimes

How contingency is sized

Small builders often add a flat percentage, set by how uncertain the job is, with more for renovations and old buildings than for repeat new builds. Larger projects size contingency from a risk register, estimating the likelihood and cost of each risk. Australian public projects take this further. Infrastructure Australia's guidance on deterministic contingency describes factor based, range based and reference class methods, and projects seeking Commonwealth funding present estimates at confidence levels such as P50 and P90. The Department of Finance explains that a P80 estimate is a cost that will not be exceeded 80 percent of the time, not the cost plus or minus 20 percent.

Builder's contingency against owner's contingency

A builder's contingency sits inside a fixed price. The client never sees it, and the builder keeps whatever is unused but absorbs any overrun. An owner's contingency sits in the client's budget, outside the contract, to pay for variations and surprises the contract does not cover. On a fixed price contract, a sensible client carries their own contingency anyway, because variations they request are extra. Mixing the two, or showing one as if it were the other, creates confusion about who pays for what.

When it matters most

Contingency matters most where uncertainty is highest: renovations of older houses, sloping or unknown sites, early stage estimates before design is finished, and long projects exposed to price rises. The UK Treasury's Green Book makes the same point for public projects through its guidance on optimism bias, which asks appraisers to adjust early estimates upward because projects tend to cost more than first thought.

Common mistakes

Leaving contingency out to win the job is the most common mistake, and the loss shows up later. The second is using contingency to cover work that should have been priced or listed as a provisional sum. The third is spending it on scope additions instead of genuine surprises. The fourth is showing a contingency line to a homeowner without explaining that it may or may not be charged, which reads as padding.

Where it shows up in the product

Quotes and proposals in the proposals module price everything in one pricing table, so a builder's contingency is usually folded into item prices rather than shown. If you agree an owner's contingency with the client, it can be a separate line item, and items can be marked optional so the client sees it as a choice. The terms, written as numbered clauses, should explain how any contingency line is drawn on and reported.

Questions people ask

Is contingency the same as profit?

No. Contingency is there to cover risk; profit is the return for doing the work. A builder who finishes a job without using the contingency may end up keeping it as extra profit on a fixed price contract, which is the reward for carrying the risk, but it is priced and planned separately.

What percentage contingency should a renovation have?

There is no fixed rule. Renovations of older homes carry more uncertainty than new builds, so owners commonly budget a higher contingency for them than for new work. Base the figure on what is unknown: the age of the building, access to hidden areas, and how complete the design is when you sign.

Does a client have to pay contingency?

On a fixed price contract the builder's contingency is already inside the price and the client pays the price. An owner's contingency is the client's own buffer and is spent only if they choose to approve variations. A separate contingency line in a contract should state exactly how and when it can be drawn.

What are P50 and P90 estimates?

They are confidence levels from a probabilistic estimate. A P50 cost has an even chance of being exceeded, and a P90 cost is one that should not be exceeded nine times out of ten. Large public projects use them to decide how much contingency to fund at each approval stage.

Should contingency include price escalation?

Often it is separated. Escalation covers predictable price rises over time, such as materials or labour costs on a long project, while contingency covers uncertain events. Keeping them apart makes the estimate easier to review, and some contracts handle escalation through a price adjustment clause instead.

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Sources

Written and checked by the OneCraft team. Last checked 21 October 2026.