Contingency

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Contingency is a markup applied to account for substantial uncertainties in quantities, unit costs, and the possibility of currently unforeseen risk events related to quantities, work elements, or other project requirements.

AACEI Contingency is an amount added to an estimate to allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result, in aggregate, in additional costs. Typically estimated using statistical analysis or judgment based on past asset or project experience. Contingency usually excludes:
  1. Major scope changes such as changes in end product specification, capacities, building sizes, and location of the asset or project;
  2. Extraordinary events such as major strikes and natural disasters;
  3. Management reserves; and
  4. Escalation and currency effects.

Some of the items, conditions, or events for which the state, occurrence, and/or effect is uncertain include, but are not limited to, planning and estimating errors and omissions, minor price fluctuations (other than general escalation), design developments and changes within the scope, and variations in market and environmental conditions. Contingency is generally included in most estimates, and is expected to be expended.[1]

References

  1. ↑ Association for the Advancement of Cost Engineering International [AACEI] (2007). Cost Engineering Terminology, 10S-90, Association for the Advancement of Cost Engineering International.
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