Contingency, risk, and design development allowances.
No construction estimate is certain. Contingency and risk allowances are the tools estimators use to acknowledge uncertainty without guessing. Knowing which type of allowance to apply, and when, separates professional pricing from hopeful pricing.
Authored by Alexandr Vreme & Maksym Vasylkov
Published — Next review
Design contingency
Design contingency covers the cost of completing the design when the tender is based on incomplete information. It is not a risk of something going wrong — it is an allowance for design decisions that have not yet been made.
The appropriate level depends on design maturity:
- Full detailed design (RIBA Stage 4): 2–5% contingency — mostly covering minor coordination gaps
- Developed design (RIBA Stage 3): 5–10% — specifications may still be provisional
- Concept design (RIBA Stage 2): 10–15% — significant design work remains
Design contingency is typically held by the client (or the design team) and released as design development progresses. Contractors should clarify whether their price is to include design contingency or whether it sits as a separate client-held allowance.
Risk allowance
Unlike design contingency, a risk allowance addresses specific, identified events that may or may not occur. Each risk is assessed for probability and cost impact, and the expected value is calculated.
Miniature risk register example
| Risk | Probability | Cost impact | Expected value |
|---|---|---|---|
| Poor ground requiring deeper foundations | 40% | £18,000 | £7,200 |
| Underground services not shown on existing drawings | 25% | £9,500 | £2,375 |
| Lead time delay on structural steel (4-week programme extension) | 30% | £14,000 | £4,200 |
| Statutory approval delay impacting start date | 15% | £6,000 | £900 |
| Adverse weather during roof works (January completion) | 20% | £4,500 | £900 |
| Total risk allowance | £15,575 |
Known unknowns vs unknown unknowns
This distinction, popularised by Donald Rumsfeld but fundamental to project risk management, is directly applicable to construction estimating:
- Known unknowns are risks you can identify and assess. Poor ground conditions, weather delays, and material price fluctuations are all known unknowns. They go into the risk register and attract a specific allowance.
- Unknown unknowns are events nobody anticipated. A supplier going into administration, a new regulatory requirement, or a once-in-fifty-years weather event. These cannot be priced in advance. The general contingency sum (rather than a specific risk allowance) provides some buffer, but unknown unknowns are ultimately managed through change control.
When contingency gets released
Design contingency is typically released in tranches as design stages are completed. A client holding a 10% contingency at RIBA Stage 2 might release 3% at Stage 3, another 4% at Stage 4, and the remainder at practical completion if unspent.
Risk allowances are drawn down when a risk event actually occurs — poor ground is confirmed, a service diversion becomes necessary. If the risk does not materialise, the allowance is released back to the client or applied to reduce the final account.
Relationship with provisional sums
Provisional sums are used when the scope of a known element is not yet defined (for example, £15,000 allowance for unknown drainage diversions). Contingency covers the cost impact of the design being incomplete across the whole project. The key difference is specificity — a provisional sum tags a particular area of the works; contingency is a global allowance. For more detail, see our guide to prime cost and provisional sums.
Questions to ask
- Is this a 5% or 15% design stage — what is the maturity of the information I am pricing from?
- What specific risks have I identified and priced, and which have I ignored?
- Is the design contingency held by the client or included in my tender sum?
- Are provisional sums being used to cover risks that should properly be priced as contingencies?
- Does my contract define how and when contingency and risk allowances can be drawn down?
Related guides and tools
Understand how prime cost and provisional sums interact with contingency. Avoid common pricing errors in our guide to estimating mistakes that destroy margin. Use the Construction Estimator to build risk-adjusted cost plans.