Budget Contingency: How Much is Enough for Your Project?

Every construction budget includes a contingency line item. Far fewer owners understand what that number actually represents—or how it should change as the project evolves.

Contingency is not insurance, padding, or a buffer for poor performance. Properly structured, it is a deliberate allowance for identified uncertainty. Improperly structured, it becomes either false comfort or a hidden slush fund.

What Contingency Is—and Is Not

Contingency is:

• An allowance for known and unknown risks
• A temporary budget reserve
• A tool that should reduce over time

Contingency is not:

• A substitute for scope definition
• A cover for design incompleteness
• Guaranteed money to be spent

Understanding this distinction is critical before deciding how much is enough.

The Three Primary Drivers of Contingency Size

1. Project Definition and Design Maturity

Why it matters:

Early designs contain assumptions. Assumptions create risk.

Typical guidance:

• Concept / schematic design: higher contingency
• Design development: moderate contingency
• Construction documents: lower contingency

The less defined the scope, the more contingency is required.

2. Project Complexity and Interfaces

Why it matters:

Complex projects multiply risk through coordination, sequencing, and system interactions.

Higher contingency is typically warranted for:

• Renovations and additions
• Tight sites or constrained access
• Projects with heavy MEP or specialty systems
• Multi-phase or occupied construction

Simple, repetitive work requires less protection than one-off or highly integrated projects.

3. Risk Allocation and Information Quality

Why it matters:

Who owns the risk determines who needs the contingency.

Consider:

• Subsurface and concealed conditions
• Utility conflicts
• Owner-driven scope flexibility
• Regulatory and third-party approvals

If risk is retained by the owner—or transferred without adequate information—the owner should carry contingency intentionally.

Typical Contingency Ranges (Context Matters)

While every project is unique, the following ranges provide general orientation—not rules:

• Early planning / conceptual: 10–20%
• Design development: 7–12%
• Final design / pre-bid: 5–10%
• During construction (owner contingency): 3–7%, depending on remaining risk

Numbers outside these ranges are not wrong—but they should be defensible.

Why Flat Percentages Fail

Many owners default to a single contingency percentage applied uniformly. This approach ignores:

• Which risks are already priced by contractors
• Which risks remain unpriced or retained
• How risk decreases as decisions are made

The result is either excess contingency that invites misuse—or insufficient contingency that forces reactive decisions.

Managing Contingency During Construction

Contingency should be actively managed, not passively held.

Best practices include:

• Tying contingency drawdown to specific risk events
• Separating owner contingency from contractor contingency
• Reforecasting remaining contingency as risks retire
• Requiring justification for use—not just availability

Used correctly, contingency preserves control. Used poorly, it disappears quietly.

A Common Owner Misconception

Many owners believe contingency exists to "cover change orders." In reality, contingency exists to cover risk. Not all changes are equal, and not all should consume contingency.

The Owner's Opportunity

The question is not "How much contingency should I carry?" but "What risks am I actually protecting against?"

Owners who answer that question honestly—and structure contingency accordingly—rarely experience surprise overruns. Those who do not often discover too late that their contingency was either illusory or already spent.