Project Contingency Calculator

How the project contingency calculator works

Enter the base cost of the project, a contingency percentage and, if it applies, a sales tax, VAT or GST rate. The calculator adds the contingency to the base cost to give a subtotal, then applies the tax to that subtotal to give the total budget. Every figure comes from the numbers you enter; the tax rate starts at zero because rates differ by country, state and type of work.

The formula is C = B × (1 + c) × (1 + t), where B is the base cost, c the contingency and t the tax rate, both as decimals. Because the tax is applied after the contingency, it is charged on the contingency too, which is right when the reserve would be spent on taxable work.

What contingency is for

A contingency is money held back for costs that are expected to arise but cannot be itemised yet: ground conditions, hidden defects in existing buildings, design changes, and price movements between estimate and purchase. It is part of the budget, not profit, and it is spent only if those costs appear. The less that is known when the estimate is made, the larger the reserve needs to be.

How large a contingency should be

Published figures show how widely the answer varies with the type of work and how early the estimate is. The US General Services Administration, in its cost estimating guidance for federal building projects, says contingency should be set by the level of risk and that it currently uses 7% for new construction and 10% for repair and alteration work.

In the UK, the HM Treasury Green Book guidance on optimism bias sets adjustments for the tendency of early cost estimates to be too optimistic, based on the overruns found on past public projects. For standard buildings it gives an adjustment of 2% to 24% on capital cost, and for non-standard buildings 4% to 51%. The upper figures reflect the average overrun at the outline business case stage, and the guidance says earlier estimates may need more. Appraisers start from the upper figure and reduce it as the causes of overrun are managed, ideally reaching the lower figure before the contract is awarded. The Treasury's own worked example applies the 4% lower bound to a £100 million non-standard building, giving £100 m × 1.04 = £104 m, before adding the separate cost of managing the risks it has identified.

The default of 15% sits above the GSA figures and inside the Treasury range for standard buildings. It is a starting point for a small project with a fair amount still unknown; a fixed-price contract on a finished design needs less, and an early estimate for an old building needs more.

Worked examples

A $75,000 project with a 15% contingency has $11,250 of contingency and a subtotal of $86,250. With no tax entered, that is the total budget. If a 7% sales tax applies to the whole job, the tax is $6,037.50 and the total is $92,287.50.

In metric-currency terms, a £50,000 project with 15% contingency has a subtotal of £57,500. Where 20% VAT applies to the work and is not already in the quote, the VAT is £11,500 and the total is £69,000. A quote that already includes tax needs only the contingency: enter 0 as the tax rate.

Getting the tax right

Sales tax, VAT and GST treat building work differently from place to place, and some jobs are taxed on materials only, some on the whole contract, and some at reduced or zero rates. The calculator applies one rate to the whole subtotal. If only part of the cost is taxable, work out that part's tax separately, or enter a blended rate: tax on $40,000 of materials at 7% is $2,800, which is 3.73% of a $75,000 base.

Using the contingency during the job

A contingency works best as its own line in the budget rather than folded into each item, so it is clear how much has been used. When an unexpected cost arises, it is paid from that line and the remaining balance is known; a contingency that is running out early is a sign that the base estimate was optimistic. Whatever is left at the end is an underspend, not a cost.

What this tool does not do

It does not estimate the base cost, assess the project's risks, or set the tax rate. Those come from quotes, a cost consultant or estimator, and your local tax authority. It adds a contingency and a tax to a cost you already have.

Using this calculator with other BuildMetricLab tools

The contractor markup calculator helps turn a cost into a price, the architect fee and structural engineer cost calculators cover professional fees, and the build timeline calculator helps plan the programme. All BuildMetricLab tools run in your browser with no sign-up, and every formula is shown on the page so the maths can be checked.