What Is Contingencies In Estimation?
The definition of contingencies in estimation according to the Association for Advancement of Cost Engineering International (AACEI) is “an amount added to an estimate to allow for items, conditions, or events for which quantity can not be predicted in advance at the time of preparing the estimate.
The term `contingency’ represents any incidental or miscellaneous character that cannot be classified under any distinct item sub-head, yet pertain to the work as a whole. Contingencies meaning in civil engineering are important when preparing estimates for any construction project.
While planning any construction project, finalizing a budget is one of the major steps in planning a successful project. Designing and planning to project considering where to spend money and budgeting for all the work take both attention to detail and the complete scope of the project.
However, all estimate is correct and accurate there is some unforeseen issues or items that come up where additional work will be needed. This is where a contingency budget becomes critical. Contingencies in estimation and costing are an amount added to the total estimate to balance incidental and miscellaneous expenses.
Read More: Types Of Engineering Contracts And Their Uses
What is the Amount of Contingencies Added?
To meet such unforeseen expenses in construction contingency estimates an additional amount of 3 to 5% of the estimated cost of the work is provided in the total estimates.
Miscellaneous incidental expenses that cannot be classified under any subhead item, are met the amount provided under contingencies. Estimating contingency is considered as 3 to 5 % of the total estimated cost of the project.
Examples of Contingencies In Construction
There is an item of work cement plastering in a 1:3 mix ratio with a neat cement finish, but during execution, it is desired to provide nosing at the end of steps. As there is no allocation of funds for this small work, the cost of sub-work may be met up from the contingency fund.
In case expenditure is required for any intermediate design change or due to an increased volume of work, and that cannot be covered from the contingency fund, a supplementary or revised estimate is submitted for its sanction before taking up the work.
If there is any saving against the amount provided under contingencies amount may be utilized with the sanction of the competent authority, to meet expenses of extra items of work.
The provision for contingencies may not be diverted to ray new work or repair which is not provided in the estimate and of which cost exceeds Rs. 2000 without the sanction of superintending engineer.
List of Contingency Items In Construction
The following is a list of contingency Items in construction,
- Extra work which is added after starting work
- Any correction after work started
- Item whose cost can not be calculated in advance
- Any mistake during constriction
Types of Contingency in Construction
Following are construction contingency examples and types used in construction.
1. Contractor Contingency
A contractor contingency is a fund into the contractor’s anticipated price for the project to account for various risk factors that cannot otherwise be accounted for in a schedule of values.
This money is set aside to account for any errors that occur on behalf of the contractor. Accordingly, contractors consider these funds spent money.
Adding this extra fund to the estimated cost of the project is the contractor accepting the fact that unpredictable costs are all part of the construction biz. Construction contingency is important before executing any project.
Read More: Estimation Of A Building With Plan
2. Owner Contingency
An owner’s reserve is an amount set aside for additions or modifications of the scope of the work. Owner contingency is mainly utilized in guaranteed maximum price (GMP) contracts. Changes and mistakes are not always the contractor’s fault.
Any changes that are not included in the estimate or bid will have to be paid by the owner-funded contingency. Incomplete plans or owner-directed changes are the leading causes of dipping into an owner contingency fund.
Summary:
| Contingency Type | Description |
|---|---|
| Design Contingency | Reserved for potential design changes or adjustments that may arise during the project development phase. |
| Construction Contingency | Allocated to account for unforeseen conditions, site issues, or unexpected challenges encountered during construction. |
| Scope Contingency | Set aside to address changes or modifications to the project scope that may emerge during the planning or execution stages. |
| Weather Contingency | Considered for adverse weather conditions that could impact construction schedules and may require adjustments. |
| Market Price Fluctuations | Allows for flexibility in budgeting for changes in material and labor costs influenced by market fluctuations. |
| Regulatory Contingency | Reserved for potential changes in regulations or unforeseen compliance requirements that may affect project costs. |
| Owner-Requested Changes | Provides flexibility for changes requested by the project owner that were not part of the original project scope. |
| Unforeseen Conditions | A general contingency for unexpected events or conditions that could not have been reasonably predicted during project planning. |
list of contingency items:
| Contingency Item | Description |
|---|---|
| Design Changes | Allowance for modifications to the project design that may be necessary during the planning phase. |
| Site Conditions | Funds set aside to address unforeseen site-related issues or challenges encountered during construction. |
| Material Price Fluctuations | A buffer for potential changes in material costs due to market fluctuations or unforeseen economic factors. |
| Labor Cost Increases | Provision for potential increases in labor costs that may arise during the construction phase. |
| Weather-Related Delays | Funds reserved for adjustments to the project schedule due to adverse weather conditions. |
| Permitting Issues | Allocated for additional expenses related to unexpected delays or challenges in obtaining necessary permits. |
| Regulatory Changes | Allowance for adapting to unexpected changes in regulations or compliance requirements. |
| Owner-Requested Changes | Set aside for modifications or additions to the project scope requested by the owner after the initial planning. |
| Equipment Breakdowns | Funds for repairing or replacing equipment that may experience breakdowns during the construction process. |
| Unforeseen Risks | General contingency to address unforeseen events or risks that were not identified in the project planning stage. |
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