Contingency is a cost reserve for things that may happen but are not certain. Many contractors use a fixed percentage, for example 5 to 10% of cost. It is easy, but says nothing about what the reserve is for or when it may be used. A risk register makes the contingency defensible.
- Rebar price rise
- Rain and delay
- Deeper earthworks
- Defects and rework
- Other
Example risk register for an Rp850 m RAP
| Risk | Probability | Impact if it happens | Expected value | Action |
|---|---|---|---|---|
| Rebar price up 10% before purchase | 40% | Rp12 m | Rp4.8 m | Lock prices with the supplier, buy in stages |
| Rain, 3 weeks late | 50% | Rp5.4 m overhead | Rp2.7 m | Schedule earthworks in the dry months |
| Hard ground deeper than expected | 30% | Rp10 m | Rp3 m | Soil test before bidding |
| Defects and rework | 50% | Rp3 m | Rp1.5 m | Inspect before covering up |
| Other | Rp1 m | |||
| Total contingency | Rp13 m (1.5% of the RAP) |
Expected value = probability × impact. A quick assessment can also use a 1 to 5 scale for probability and impact; high scores (for example 15 or more out of 25) need a detailed action plan. On large projects, Monte Carlo simulation gives a more careful figure; one road project study found about 9% of budget on average, so the figure depends heavily on the type of project.
Using and reporting it
- Keep contingency as a separate line in the RAP, not spread into unit prices.
- Record every use: which risk happened and how much was used.
- Review the register monthly; risks that have passed release their reserve.
- Report the remaining contingency in the monthly cost report.
Common mistakes
- Contingency hidden in unit prices, so its use is invisible.
- A fixed percentage with no risk register.
- Contingency used to cover estimating errors rather than risks.
- A register made once and never reviewed.
The full guide is in How to build a construction cost report that catches overruns early. It has a free template (Excel or Google Sheets) and a checker that reads your own workbook.
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Common questions
How much contingency is reasonable?
There is no single figure. Work it out from the risk register (probability × impact); 5 to 10% is only a starting point.
What is the difference between contingency and profit?
Contingency is set aside for named risks and its use is reported; profit is the planned margin.
Who may use the contingency?
Ideally only the project manager, with a record of the risk that happened, so the remaining reserve is always clear.
References
- ITS engineering journal: contingency estimation on road projects (Indonesian): about 8.92% on average with Monte Carlo