A monthly contingency routine for owners in four steps

The pay application arrives. Somewhere in it the contingency moved. The owner has a few days to understand what happened before the next one arrives and the question becomes harder to ask. A routine makes those few days productive. This one has four steps, and the order matters because each step needs the one before it.

Step one: reconcile the balance

Start with the numbers. Take the contingency line on the G703, compare the current balance to last month's, and the difference is this month's net movement. Compare that movement to the draws listed in the contractor's narrative or contingency log. They should match. When they do not, the gap is the first question for the contractor, and it should be asked before anything else.

Then reconcile to the owner's own ledger. The ledger's running balance after this month's entries should equal the G703 line. If the owner has recorded a draw the contractor has not billed, or the reverse, note it. Reconciliation is not analysis. It is making sure everyone is looking at the same fund.

Step two: classify each draw

For every new draw, record the cause from the fixed list, the backup status, and whether the owner agrees with the contractor's classification. This is where judgment enters. A draw described as coordination might be a design gap on reading the backup. A draw described as unforeseen might be something the geotechnical report mentioned.

Do not skip the small ones. A routine that only classifies draws over a threshold produces a log where the pattern lives in the unclassified remainder. Classification takes a minute per draw when it is done monthly and an afternoon per draw when it is done at closeout.

On a fictional $33 million public safety building, the owner's representative found that the monthly classification step took under an hour once the cause list was fixed and the contractor had learned to send backup with the narrative. The first three months took much longer, mostly chasing documents. After that the routine ran itself.

Step three: project the runway

With the balance reconciled and the draws classified, compute the exhaustion date on both the average and trailing rates. Compare each to substantial completion. Then look at the cause mix in the trailing window and ask whether the work ahead carries the same risk. That last question is the one that turns a computed date into an expectation the owner can defend.

Record the dates in the month's snapshot. Do not overwrite last month's. The trend across months is what the board will eventually ask about, and it only exists if each month is kept as it was.

When to skip to step four early

If a single draw this month exceeds a consent threshold, or the trailing exhaustion date jumps by more than two months, go straight to a decision. The rest of the routine can wait a day. The conversation with the contractor cannot.

Step four: decide and write it down

The last step is a sentence or two. What, if anything, does the owner intend to do as a result of this month's review? Often the answer is nothing, the fund is on track, and that is a decision too. Sometimes it is a request for backup, a challenge to a classification, a transfer from owner contingency, or a note to raise a pattern with the design team.

The written decision goes in the monthly owner report next to the contingency line. A board that sees the balance, the projection, and the decision on one page has what it needs. A board that sees only the balance will ask for the rest, usually at the meeting.

Costwitness is built around this routine. It reconciles the ledger to the pay application, holds the classification and the owner's position on each draw, computes both projections from stored snapshots, and carries the month's flags and decisions into the report. The software runs the steps. The owner makes the calls inside them.

In the product

Contingency ledger, Monthly owner report, Anticipated final cost. Free tool: Contingency Runway, Pre-GMP Readiness Score.

Keep reading

Earlier: Moving a draw between funds: why every reclassification needs an audit trail. Later: The contingency log: what every entry should carry. All articles on contingency.