Contingencies in construction
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| − | Contingencies are downside risk estimates generally applied to cost planning and timescales. | + | Contingencies are downside risk estimates generally applied to cost planning and timescales. They make allowance for the unknown risks associated with a project. |
| − | Contingencies are often expressed in terms of percentages. The percentage contingencies applied are at their greatest in the early stages of the project when there are the greatest number of possible risks, but can then be reduced as better particulars about the project become available and some risks | + | Typically contingencies refer to costs, and are amounts that held in reserve to deal with unforeseen circumstance. However, they may also refer to other aspects of the project, for example, the programme may include a contingency where it is important that a specific completion date is achieved. |
| + | |||
| + | A contingency may also refer to part of a contingency plan, that is a plan than can be enacted to mitigate project risks identified during risk assessment, if those risks increase or materialise, for example, adverse weather, or an industrial dispute.<br/> | ||
| + | |||
| + | Monetary contingencies are typically referred to in relation to the overall client for a project. However, other parties in the supply chain are also likely to include contingencies in their cost planning. | ||
| + | |||
| + | Whilst it is advisable for clients to hold a contingency, they might no wish to share this information with the rest of the project team, as they may see the as a license to exceed the budget in the knowledge that the client has a reserve that can be spent. | ||
| + | |||
| + | Contingencies are often expressed in terms of percentages. The percentage contingencies applied are at their greatest in the early stages of the project when there are the greatest number of possible risks, but can then be reduced as better particulars about the project become available and some risks have passed or been overcome: | ||
*At the preliminary business plan stage total cost estimates might include a 15% contingency. | *At the preliminary business plan stage total cost estimates might include a 15% contingency. | ||
*In the elemental cost plan this might reduce to 10% of fees and construction costs. | *In the elemental cost plan this might reduce to 10% of fees and construction costs. | ||
*On awarding the contract, 5% of the contract value might be included as contingency in the cost plan. | *On awarding the contract, 5% of the contract value might be included as contingency in the cost plan. | ||
| − | + | In addition to a contingency, the client is likely to hold retention. Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract. Retention can also be applied to nominated sub-contractors, and the main contractor may also apply retention to domestic sub-contractors. | |
= Find out more = | = Find out more = | ||
=== Related articles on Designing Buildings Wiki === | === Related articles on Designing Buildings Wiki === | ||
| − | * | + | *Business plan. |
| − | * | + | *Cost plan. |
*Cash flow. | *Cash flow. | ||
| − | |||
*Contingency plan. | *Contingency plan. | ||
| + | *Retention. | ||
| + | *Risk management. | ||
[[Category:Cost_/_business_planning]] | [[Category:Cost_/_business_planning]] | ||
[[Category:Property_development]] | [[Category:Property_development]] | ||
| − | |||
Revision as of 09:58, 20 November 2015
Contingencies are downside risk estimates generally applied to cost planning and timescales. They make allowance for the unknown risks associated with a project.
Typically contingencies refer to costs, and are amounts that held in reserve to deal with unforeseen circumstance. However, they may also refer to other aspects of the project, for example, the programme may include a contingency where it is important that a specific completion date is achieved.
A contingency may also refer to part of a contingency plan, that is a plan than can be enacted to mitigate project risks identified during risk assessment, if those risks increase or materialise, for example, adverse weather, or an industrial dispute.
Monetary contingencies are typically referred to in relation to the overall client for a project. However, other parties in the supply chain are also likely to include contingencies in their cost planning.
Whilst it is advisable for clients to hold a contingency, they might no wish to share this information with the rest of the project team, as they may see the as a license to exceed the budget in the knowledge that the client has a reserve that can be spent.
Contingencies are often expressed in terms of percentages. The percentage contingencies applied are at their greatest in the early stages of the project when there are the greatest number of possible risks, but can then be reduced as better particulars about the project become available and some risks have passed or been overcome:
- At the preliminary business plan stage total cost estimates might include a 15% contingency.
- In the elemental cost plan this might reduce to 10% of fees and construction costs.
- On awarding the contract, 5% of the contract value might be included as contingency in the cost plan.
In addition to a contingency, the client is likely to hold retention. Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract. Retention can also be applied to nominated sub-contractors, and the main contractor may also apply retention to domestic sub-contractors.
Find out more
Related articles on Designing Buildings Wiki
- Business plan.
- Cost plan.
- Cash flow.
- Contingency plan.
- Retention.
- Risk management.
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