AEC definitions
Contingency is money set aside for risks that are not yet a defined change. Design contingency covers incomplete documents. Construction contingency covers field surprises. In a GMP, the contractor's contingency and the owner's contingency follow different rules, and neither is profit until the contract says a savings clause applies.
Definition
An estimate without contingency pretends the documents are perfect and the site is empty. The reserve is not a blank check. Draw rules belong in the contract: what events qualify, who approves, and what happens to the balance. Spending contingency on a scope addition the owner requested hides an owner change inside the contractor's risk fund. That destroys the cost report. Allowances are not contingency. An allowance is a named placeholder. Contingency is unnamed risk.
In depth
Design contingency belongs in an estimate before the documents are done. It should drop at each design milestone. Carrying a schematic-sized design contingency into a CD estimate double-counts the work the drawings now show.
Construction contingency covers the unknown that remains after the documents are issued: productivity, minor misses, weather the contract assigns to the contractor. It does not cover owner additions.
The GMP often includes a contractor contingency the CM may use for costs within the GMP, under a defined procedure, and an owner contingency outside the GMP for owner changes. Monthly reports should show both balances.
If the CM spends contractor contingency on an owner-directed upgrade, the GMP has subsidized a change. The next report will not explain the variance.
Who requests, who approves, what backup is required, and which cost categories are eligible. A draw with no backup is a journal entry, not a cost. Some agreements require notice before contingency is used for a subset of risks.
Do not wait for the end of the job to book a pile of draws. The point of the fund is a live cost report.
The percentage should match completeness and risk, not a habit. A renovation with occupied floors and unknown subsurface carries more than a new warehouse on a clean pad. Say the basis.
Contingency is not overhead and not fee. Putting fee inside the contingency line confuses every later reconciliation.
Shared savings, owner-only return, or contractor-kept balance are three different deals. The GMP exhibit should say which. Teams that argue this at the end are reading a clause they did not negotiate.
Put the leftover rule in the same exhibit as the draw rules, so the monthly report and the final accounting use one definition.
Examples
A schematic estimate carries 15 percent design contingency. The CD estimate carries 3 percent construction contingency and no design contingency, because the documents are issued.
A GMP report shows contractor contingency used for winter protection the CM owns, and owner contingency used for an added classroom the owner requested.
An allowance for art is reconciled to invoices. It is not drawn from contingency.
FAQ
Unlock the value of your institutional knowledge—organized, connected, and grounded in your team's critical workflows with Nomic.
