1 September 1997
Contingencies relate to a known and defined project
improve the cost estimate through additional
scope and are not a prediction of future project scope
investigations or studies, or to proceed with the
or schedule changes.
higher cost estimate, is a management decision.
b. Contingencies are normally separated into
b. Civil Works.
two elements for incremental analysis - design
contingencies and construction contingencies.
(1) The goal in contingency development is
to identify the uncertainty associated with an item of
(1) Design contingencies are assigned to
work or task, forecast the risk/cost relationship, and
cover construction cost increases due to design
assign a value to this task that will limit the cost risk
incompleteness, detail changes, alternative design
to an acceptable degree of confidence. Consideration
changes, and associated costing inaccuracy. Design
must be given to the details available at each stage of
contingencies will normally decrease as design
planning, design, or construction for which a cost
information becomes known.
estimate is being prepared. During development of
the project cost estimate, sufficient contingencies
(2) Construction contingencies are a
should be added at the lowest title or detail level
reserve for construction cost increases due to adverse
where the risks or uncertainties have been identified.
or unexpected conditions such as unforeseeable
Contingencies may vary throughout the cost estimate
relocations; foundation conditions; utility lines in
and could have a significant impact on overall costs.
unknown locations; quantity overruns; or other
The reasons for final contingency development and
unforeseen problems beyond interpretation at the
assignment must be included in the cost estimate as
time of or after contract award.
a part of the project narrative. When the
contingency factors shown in table 13-1 are applied
c. When considerable uncertainties are
to any portion of the cost estimate up to the feature
identified, cost risk analysis can establish the areas
level, the statement "Normal design variances are
expected - normal contingency values used" is
estimated project cost will or will not exceed the
acceptable in addressing that specific portion.
actual cost. Cost risk analysis is a process to
consider costs and risks as follows:
(2) The contingency factors in table 13-1
are based on percentage and represent a reasonable
(1) Identify risks within a project that
guide for the construction features of the cost
could result in cost change.
estimate. The table provides a guide for contingency
development and is not intended to restrict or limit
(2) Measure this change impact on the
contingencies to these values. If the overall
contingency value developed through a detailed
analysis exceeds these guidelines, additional site
(3) Manage these risk elements to avoid
analysis and/or design should be considered in those
their negative consequences. This type of analysis is
areas where uncertainties may be reduced.
an in-depth approach that replaces a simple
percentage rate contingency assignment. Computer
(3) At construction contract award, a
programs are commercially available to perform cost
minimum contingency of five percent of the contract
risk analysis and are discussed in appendix E.
amount must be available for contract modification.
This contingency is not included in the Government
estimate, but must be available in accordance with
13-6. Application of Contingencies
ER 5-7-1 (FR). As a project nears completion, this
contingency must be reduced accordingly.
a. Contingency allocations are specifically
related to the project uncertainties and should not be
c. Military Programs.
(1) The design contingency covers
The decision to reduce these uncertainties and
component items that cannot be analyzed or