How much contingency a design stage usually needs, and why it is an industry pattern

A guaranteed maximum price is only as firm as the drawings it was priced from. A GMP set at 60 percent design carries more unknowns than one set at 95 percent, and the contingency inside it should say so. The industry has a general sense of how contingency should fall as design completes. It is a pattern, not a formula, and owners should treat it as a check rather than a rule.

What the industry pattern looks like

The recognized pattern is simple in shape. At schematic design, the contractor's estimate is mostly assumptions and the contingency is at its widest. At design development, the systems are chosen but not coordinated, and contingency narrows. At construction documents, the remaining unknowns are field conditions and coordination, and contingency narrows again. By the time drawings are issued for construction, what the industry usually carries is a modest cushion for execution risk only.

Both funds follow this pattern, but not in step. The contractor's contingency tracks estimating and coordination risk, which falls steadily with design completeness. The owner's contingency tracks scope and program risk, which falls only when the owner stops changing its mind. A fully coordinated set of drawings does nothing for a department that has not finalized its equipment list.

This post does not put a number on any stage. The ranges that circulate in the industry vary by building type, by region, by market conditions, and by how conservative the estimator is. An owner should ask its cost consultant or owner's representative what the usual range is for this building type at this stage, and then compare.

Why the pattern matters at GMP signing

The GMP amendment records a contingency figure and the design stage it was priced from. Those two facts together tell the owner whether the contingency is in the expected range. A contingency that looks generous for construction documents may be thin for design development, and the amendment will often say which it was.

A thin contingency at an early design stage is not automatically a problem. It may mean the contractor has priced the unknowns into the line items instead, or has carried them in qualifications and clarifications the owner should read closely. It may also mean the contractor is taking a risk it expects to recover through change orders. The owner cannot tell which from the number alone. The number is what prompts the question.

Consider a fictional $38 million community college instructional building with a GMP set at design development. The contractor carries contingency that the owner's consultant reads as light for that stage. The owner asks. The contractor points to a long assumptions list and a set of allowances for unresolved systems. The owner now knows where the risk sits, and it is not in the contingency line.

The pattern as a mid project check

Once the job is underway, the pattern has a second use. The contingency that was right for the design stage at signing should be drawn down in a shape that roughly follows the resolution of the unknowns it was set against. If the GMP was set at design development, the owner should expect heavier draws during buyout and coordination, then a taper.

Draws that do not taper are a sign the unknowns were bigger than the stage implied, or that new ones are being created. Either way the owner's log by cause is what separates the two. A contingency that is consumed by design gap draws on a set that was supposedly coordinated is a conversation with the design team, not the contractor.

What the pattern is not

It is not a contract term, unless the owner negotiated one. It is not a guarantee that a contingency in the usual range will be enough. And it is not a measurement that any one party can claim as its own. It is what the industry usually carries, a reference point for a conversation between the owner and its advisors.

Recording the stage with the number

The owner's ledger should record, for each contingency fund, the starting balance and the design completeness it was set at. Without the second fact the first one cannot be judged later. A board asking in month ten whether the contingency was ever adequate needs to know what the drawings looked like in month zero.

Costwitness stores the design stage alongside each fund's starting balance on the frozen GMP baseline and shows the draw down against it. The software holds the reference. Whether the starting figure was right for the stage is something the owner's advisors judge.

In the product

GMP baseline, Contingency ledger, Allowance register. Free tool: Contingency Runway, Allowance Confidence Band.

Keep reading

Earlier: Unused contingency at closeout: who keeps it under your contract. Later: Trailing rate versus average rate: two ways to project a contingency. All articles on contingency.