Viewpoint Construction Software is another software package of many on the market that is dedicated to providing advanced, easy-to-use, and efficient management software and which is said to be available exclusively to the construction industry. Project Managers and estimators are indeed fortunate that there is such a wide range of computer-aided cost estimation software systems available, ranging in sophistication from simple spreadsheet calculation software to integrated systems involving design and price negotiation over the Internet. While such software involves costs for purchase, maintenance, training, and computer hardware, the user will experience significant benefits. In particular, cost estimates may be prepared more rapidly and with less effort. Professor Chris Hendrickson, Codirector of the Green Design Institute, depicts some of the more common features of computer-aided cost estimation software such as:

The construction industry continues to have procurement problems arising from an impractical division between the design and construction process, a lack of organization among subcontractors, strained relationships between design professionals and construction team members within the integrated project team, outdated design and construction techniques, preventable delays, and inferior quality end product. However, in recent years the construction industry has demonstrated significant improvements in application of new technology and methods in which clients have been the driving force for change leading to the development of improved and more sophisticated services (e.g., project management, facilities management, better handle on cash flow, and alternate procurement methods). This need for change originated from the desire for a more competitive and efficient industry. Education programs have also been created to merge construction and design to emphasize multiskilled trades.

When it comes to green building a Davis Langdon study, “Costing Green: A Comprehensive Cost Database and Budgeting Methodology” compared the square-foot construction costs of 61 buildings pursuing Leadership in Energy and Environmental Design (LEED) certification to those of similar conventional buildings without green objectives. Taking into consideration climate, location, and other variables, the study came to the conclusion that for many of the sustainable projects, aiming for LEED certification, resulted in little or no impact on the general budget.

Another point worth noting is that construction lending is basically real estate lending and the construction lender should therefore be aware that the primary security of the loan is primarily the real estate to be developed and that in order for the loan to be repaid the development has to be completed. Experience shows that few real estate borrowers are able to repay a construction loan from the assets listed in their financial statements. The borrower’s professional and financial capabilities are key elements in the loan determination and should be thoroughly looked into before a loan commitment is made.

Professor Hendrickson says, “The costs of a constructed facility to the owner include both the initial capital cost and the subsequent operation and maintenance costs. Each of these major cost categories consists of a number of cost components.”

To be able to determine the capital cost for a construction project, it is necessary to estimate the expenses related to the initial erection of the facility which according to Hendrickson include:

In addition, the project owner must also consider the operation and maintenance cost of the project over its life cycle for which Hendrickson includes the following expenses:

The consequence and significance of each of the above cost elements rely on the project’s type, size, and location as well as the management organization, among many other considerations. As far as the owner is concerned, the ultimate objective is achieving the lowest possible overall project cost that at the same time meets the specified quality and investment objectives of the project.

A well-defined Project Budget includes all the possible hard and related construction costs and identifies where the funds are coming from. To estimate the total project cost (TPC) therefore one must include all hard and soft costs to make the building complete and useable as intended. Costs would include construction costs, construction contingency, architect/engineer fee, project contingency, owner services, and administrative fees. Depending on the general conditions and contract documents requirements, the TPC may also include infrastructure costs, furniture and equipment costs, voice/data costs, instructional technology costs, moving costs, and custodial equipment costs.

Construction cost, on the other hand, is the fee charged by a general contractor or construction firm for a project. Construction costs per gross square foot will vary from state to state, whether the project is new construction or renovation and the type, size, and complexity of the project (e.g., office, educational, hospital, hotel, school, residential, etc.).

According to Hendrickson the important thing is for “design professionals and construction managers to realize that while the construction cost may be the single largest component of the capital cost, other cost components are not insignificant. For example, land acquisition costs are a major expenditure for building construction in high-density urban areas, and construction financing costs can reach the same order of magnitude as the construction cost in large projects such as the construction of nuclear power plants.

From the owner’s perspective, it is equally important to estimate the corresponding operation and maintenance cost of each alternative for a proposed facility to analyze the life cycle costs. The large expenditures needed for facility maintenance, especially for publicly owned infrastructure, are reminders of the neglect in the past to consider fully the implications of operation and maintenance cost in the design stage.”

Most construction budgets contain a contingency clause for unexpected cost overruns that may occur during construction. While this contingency amount may be included within each cost item, it is preferably included as a single category namely a construction contingency, which is normally a percentage of the project’s estimated cost. This contingency amount is based on several factors including the complexity and size of the project and whether it is new construction or renovation, etc. For example, for large new construction projects the contingency is generally about 5% of the total cost, whereas for renovations, it may be roughly 7%. Likewise, for small interior projects, it may be as high as 10%. Any remaining contingency amounts can be released upon substantial completion of the project. However, it should be noted that in many cases neither the architect nor the contractor know the contingency amount in place. On this, the Engineering News-record says that “On average, owners share contingency information with their architects a little over half the time (58%) and with their contractors 43% of the time.” In Fig. 12.1, below is a sample project cost breakdown showing the main elements to be considered when preparing a budget estimate for the project.

The developer’s, builder’s or CM’s fee is usually released as a direct percentage of the value of the subcontractual work completed to date.

Randy White CEO of White Hutchinson Leisure & Learning Group says, “Many a project gets into serious trouble when, for whatever reason, the project can’t be developed within the budget. Usually, by the time the problem is discovered, it’s too late to increase the budget, as financing has already been secured. So to keep the project within budget, critical features end up being compromised, such as the theming, finishes, and the quality of the materials, furniture and equipment, the things that really matter the most to creating the guest experience. Or certain attractions are eliminated, so the project never performs as originally planned and projections are never achieved. In fact, such last-minute deletions and changes can seriously threaten a project’s very long-term survival.”

For obtaining a construction loan it is particularly important to have a Budget for the project in place. Thus prior to calculating the required construction loan amount, a basic budget is needed, the main components of which include:

As previously mentioned, the total cost of construction is obtained by adding all the costs incurred in the project including soft and hard costs. Most projects are constrained by limited monetary funding resources. Consequently, they need to have a budget in place to initially define its funding requirement. The project manager develops the budget based on the cost estimates calculated at the beginning of each project phase and refined once there is more accurate information defining the project’s scope. Refining the budget occurs through studies and analysis in the design development process. When Owners try to fix the budget too early in the project life cycle, they are surprised by the significant increases in the budget over what was set forth. Randy White says that “This reoccurring problem is often caused by the nature of the design process. Design proceeds from general to specific and from conceptual to detailed. Accordingly, there is limited ability to accurately predict construction costs at the onset when initial project planning takes place and accurate costs are needed as part of the business plan to secure financing.” With respect to project cost overruns, White says, “Cost overruns are also caused by the traditional design-bid-build process. First the project is designed, and then a contractor is selected by either competitive bid or negotiation to build the project. This process precludes value engineering until the project is already designed. So by the time the bid comes in over budget, the only way to reduce costs is to make major compromises in finishes, quality or components.”

One of the critical tasks and assignments of the Project Manager (PM) is the development and tracking of the project budget. The PM first develops a project budget in the early feasibility phase and continues to refine it throughout the different project phases until the project is “bought out” by the general contractor prior to the start of the construction phase. All the elements of the budget should be clearly defined and fine-tuned throughout each phase. Specialized estimating software is often used to create, develop, monitor, and track budgets. When developing a budget, there are certain logical steps that should be followed:

Furthermore, total reliance on “program” and/or “preliminary” level estimates for setting a final project construction budget is inappropriate because it is far too early in the project’s design/construction process. Until the time when a fairly accurate budget estimate can be developed, the project remains too conceptual in terms of scope and program size to accurately estimate final costs. After the Architect completes the schematic design phase, the project’s scope of work is more clearly defined to the extent that a realistic budget estimate can be arrived at to provide effective discipline and direction on the project. However, this is still insufficient to bid the project and will not be able to do so until the contract documents are completed including all plans and specifications. The different phases or milestones a project must go through from design concept to completion and occupancy are:

Fig. 12.3 below is an example of preliminary construction budget for a typical project (new construction). This is an example of a project budget for a government agency that proposes to construct a new facility in which to expand its activities. It should be noted that these costs will vary depending on what region of the country the project is located.

Another example of a simple project budget is in Fig. 12.4 which is adopted from Charter School Facilities—A Resource Guide on Development and Financing, which shows the typical components of a project budget; it includes the purchase and renovation of a building as opposed to new construction.

Most construction literature ignores the issue of buyout and concentrates on addressing either estimating or project management. The process starts during the tender preparation stage, as the contractor solicits and assesses offers in the process of assembling the cost estimate. Should the contractor’s proposal be successful and the contractor is awarded the contract, the next step is to attempt to contract with the firm that submitted the best offer. Material procurement and subcontracting are typically the two distinct parts of the buyout process discussed, even though both may be the responsibility of a single department or individual.

Most construction professionals are familiar with the concepts of project buyout and bid shopping. Project buyout is an ethical and necessary practice conducted during the preconstruction process, which enables a general contractor to clarify scopes of work and streamline specific activities for the project. As construction professionals more fully understand the ethical issues separating the unacceptable practice of bid shopping from the ethical practice of project buyout, the efficiency and quality of the estimating and subsequent project management processes will be improved. Estimators are normally required to bear the responsibility of obtaining bids and performing project buyout while maintaining high ethical standards.

A buyout estimate is different from a bid estimate. A bid estimate is detailed to bid a project, whereas the purpose of a buyout estimate is to order materials once the project becomes a viable job for the contractor or subcontractor. A typical example of a bid estimate versus a buyout estimate would be metal studs for drywall. During the bid period, it is good enough to know the total linear footage of studs by size and gauge. A buyout however requires greater detail, for example, in addition to the bid information a buyout would require the lengths for each application. However, in mechanical and electrical scopes of work, the bid estimate and buyout estimates are very similar.

Project buyout takes place between the award of a bid to the general contractor and the issuing of subcontracts and purchase orders. While bid shopping is not illegal, it is considered an unethical practice where details of a bid are revealed to a competitor in an effort to solicit an overall lower bid. A better understanding of ethical versus acceptable construction practices can only help construction professionals identify the basic differences between bid shopping and project buyout while at the same time steering clear of unethical practices and still remain competitive.

According to Cody Andreasen, Mark Lords, and Kevin R. Miller, of Brigham Young University, “The justification, for some contractors, when arguing in favor of bid shopping is, that if a bid is revealed to another subcontractor, then a lower bid may be forth coming, which may translate into a lower overall bid on the project, benefit the owner, and thus increase the likelihood of being awarding the project. It can be argued that this is no different than shopping for a car or bartering for goods in a foreign country. However, in the auto industry there is an expectation that pricing will be disclosed to other dealers in the buying process. That expectation does not exist in the construction industry. A construction project is something yet to be built. It is not an existing product and any changes in the cost typically will affect the quality or schedule of the project. Therefore, the owner is not receiving the same product if bid shopping occurs.”

Bid shopping essentially occurs when a general contractor discloses the bid price of one subcontractor or supplier to its competitors in an endeavor to obtain a lower bid than that on which the general contractor based the original bid to the owner. However, a technique that is often used to prevent bid shopping is for a subcontractor to submit a bid at the last minute, thus preventing the general contractor receiving the bid from shopping it.

By and large, bid shopping occurs because most subcontractors being shopped believe that if they do not reduce their price they will not get the job. Additionally, if business is slow, subcontractors may be willing to accept lower profit margins just to keep their crews busy even when it means they will only break even on the project. Sometimes, the general contractor will induce a subcontractor additional work upon being awarded the job. Although it may appear that the owner is the principal beneficiary of bid shopping by receiving a lower price for the project, usually one finds that the owner also receives a lower quality project in addition to running greater risks and warranty problems down the road. The Associated General Contractors of America (AGC) describes the practice of bid shopping as “abhorrent” and is totally opposed to it. These feelings are shared by the American Subcontractors Association (ASA), which considers bid shopping and bid peddling as unethical. This view is also shared by other contractor trade associations such as the AGC, ASA, and ASC. Moreover, this viewpoint appears to be shared by the courts that have opined on bid shopping.

The main benefits of project buyout according to the Brigham Young University authors are that “Project buyout allows a period of time for the contractor to ensure that each scope of work is covered by only one subcontractor. Occasionally a contractor finds that two subcontractors submitted bids for an overlapping scope of work. Since both subcontractors do not need to perform the work, the general contractor will determine which subcontractor will perform the work for the overlapping scopes. The subcontractor that does not perform the overlapping work will generally provide a credit to the general contractor for the reduction in their scope of work. If the opposite is found and there has been work that was assumed to be included in a subcontractor’s scope of work, but was not included in the bid, the general contractor generally negotiates with a subcontractor to have the work included in their subcontract and that negotiation may increase the contract amount for the subcontractor.

Another instance where changes could be made during the project buyout process results when a subcontractor anticipated a different project schedule than the general contractor. As a result, the subcontractor may not have sufficient crews to complete the job in the time frame or manner desired by the general contractor. In this case, the general contractor may elect to use a different subcontractor to maintain the project schedule.”

Darin C. Zwick and Kevin R. Miller authors of an article entitled, Project Buyout emphasize the importance of completing the buyout process as early as possible and say, “By completing buyout early, future delays are avoided in the event that a given scope of work is difficult to buyout due to conflicts with subcontractors or suppliers. It also protects the project from price escalation.

Other tasks that occur during the buyout process by the general contractor include checking the following items to ensure that the subcontractor can perform the work for the project:

The expiration dates of the previous items need to be verified to prevent lapses of coverage while the subcontractor is working on the project.

Another consideration that companies need to examine during the buyout process is the financial stability of the subcontractors and vendors. During economic downturns, companies may declare bankruptcy, leaving the general contractors in a precarious situation.”

Among the main duties of the project buyout specialist is to focus on awarding scopes of work to subcontractors and to act as a liaison between field operations and subcontractors while keeping the contract amount in budget. This is particularly important because it relates to disputes and problems that often exceed field management’s ability to solve matters in a timely manner.​ During the preconstruction phase, this includes technical support to both the design-build and estimating departments. In addition, the buyout specialist is responsible for the acquisition of new subcontractors for all projects including cost control, adherence to corporate and contract compliance, quality control, and customer satisfaction. The project buyout specialist is also responsible for the quality and completeness of project buyout and small business utilization as well as customer relations and client satisfaction in all areas within the firm. To achieve maximum support for and from each staff member requires team building and a holistic approach. This includes setting and monitoring goals and collaborating with purchasing and operational goal setting. Over the last few years, there has been a significant wave of web and cloud apps, which are streamlining communication and simplifying and improving efficiency in construction management. For example, there are currently several proprietary buyout software packages on the market that can save time and reduce effort by automating the bid solicitation process. Buyout software also provides an important tool for determining where the project is in the buyout process at any particular moment. It can also establish the percent complete, minimize exposure, and rapidly see how the actual prices compare with the estimated costs. Moreover, it can offer access to standard cost codes, categories, and tax groups stored in various applications such as accounts payable applications. One example of such software is from Sage Software, Inc. (www.sagecre.com), which offers a software package called “Buyout” that reportedly has the following features (Fig. 12.6a):

Smartsheet is another popular spreadsheet-inspired work management tool with robust collaboration and communication features (Fig. 12.6b). The program has numerous prebuilt construction templates; likewise, it is not complicated to create a timeline, track progress, manage documents, and consolidate the details. Furthermore, with Smartsheet, Gantt charts are spontaneously created and adjust automatically whenever a change is made, thus keeping team members and stakeholders constantly up-to-date. In addition, team members can have discussions directly in the sheet and set reminders and alerts, so team members are always on the same page.

It should be noted that many trade and professional organizations have developed their own standard documents and general conditions. The most widely used may be those published by the American Institute of Architects (AIA), specifically AIA Document A201. This document has been well tested in the courts and is familiar to most contractors. The ConsensusDOCS 200, Standard Agreement and General Conditions between Owner and Contractor, is also widely used. Likewise, ConsensusDOCS 410, Agreement and General Conditions between Owner and Design-Builder [Cost of Work Plus Fee with Guaranteed Maximum Price (GMP)] is sometimes used. There are a number of standard clauses that typically appear in the general conditions. Below are some of the main standard clauses that typically appear in the General Conditions with a brief description of each (Bear in mind that they may vary depending on the type of general conditions contract):

Definitions and General Provisions: This clause provides definitions for the purpose of the Contract Documents relevant to the contracts, the work, and the drawings and specifications. It also clarifies the ownership, use, and overall intent of the contract documents.

Owner Responsibilities: This section defines the information and services that the owner is required to supply. It also defines the owner’s rights and responsibilities and the owner’s right to stop or carry out the work.

Contractor General Obligations and Responsibilities: This section lays out the obligations of the contractor regarding construction procedures and site operations, employees, labor and materials, warranty, taxes, permits, fees and notices, schedules, samples and product data, and cleaning up. This clause essentially states that the Contractor is required to execute and complete the Works and remedy any defects therein in strict accordance with the Contract, with due care and diligence and to the satisfaction of the Architect, and shall provide all labor, including the supervision thereof, materials, and all other things, whether of a temporary or permanent nature. The Contractor shall also take full responsibility for the adequacy, stability, and safety of all site operations and methods of construction, but the Contractor shall not be responsible, unless expressly stated otherwise in the Contract, for the design or specification of the Permanent Works or of any Temporary Works prepared by the Architect.

Administration of the Contract: This section describes the duties, responsibilities, and authority of the architect for the administration of the contract. Specific clauses are included dealing with the architect’s responsibility for making periodic site inspections and issuing periodic reports to the owner or lender. This section also deals with issuing modifications in drawings and technical specifications and assisting the Contractor in the preparation of change orders and other contract modifications, as well as assisting in inspections, signing Certificates of Completion, and making recommendations with respect to acceptance of work completed under the contract. The Architect is also required to review detailed drawings and shop drawings, price breakdown, and progress payments estimates as well as how requests for additional time, claims, and disputes will be handled.

Preconstruction Conference and Notice to Proceed: This section deals with the procedures to conduct a preconstruction conference to acquaint the different parties with one another. For example, within 10 calendar days (or as stated in the contract documents) of contract execution, and prior to the commencement of work, the Contractor shall attend a preconstruction conference with representatives of the Owner, Architect, and other interested parties and stakeholders. This clause requires that the contractor can only begin work upon receipt of a written Notice to Proceed from the Owner or designee. The Contractor may not begin work prior to receiving such notice.

Availability and Use of Utility Services: This section deals with the availability of utility services. Here the Project Owner shall ensure that all reasonably required amounts of utilities are available to the Contractor from existing outlets and supplies, as specified in the contract. Unless otherwise provided in the contract, the amount of each utility service consumed shall be charged to or paid for by the Contractor at prevailing rates charged to the Owner.

Assignment and Subcontracting: This section deals with the assignment and awarding of subcontracts by the general contractor for portions of the work. This clause generally states that the Contractor shall not, except after obtaining prior written approval of the Project Owner, assign, transfer, pledge, or make other disposition of the Contract or any part thereof or of any of the Contractor’s rights, claims, or obligations under the Contract. In the event the Contractor requires the services of subcontractors, the Contractor shall also obtain prior written approval of the owner for all such subcontractors. The approval of the Owner does not relieve the Contractor of any of his obligations under the Contract, and the terms of any subcontract shall be subject to and be in conformity with the provisions of the Contract.

Construction by Owner or Others: This clause deals with the owner’s right to perform some of the construction work with his/her own forces or to award separate contracts to other parties besides the general contractor. The Contractor shall in accordance with the requirements of the Architect/Project Manager and the contract affords all reasonable opportunities for carrying out portions of the work by the owner or to any other contractors employed by the owner and their workmen or the owner’s workmen who may be employed in the execution on or near the Site of any work not included in the Contract or of any contract which the Owner may enter into in connection with or ancillary to the Works.

Permits and Codes: This section basically states that the Contractor shall give all notices and comply with all applicable laws, ordinances, codes, rules, and regulations. Before installing the work, the Contractor shall examine the drawings and the specifications for compliance with applicable codes and regulations bearing on the work and shall immediately report any discrepancy it may discover to the Architect/Project Manager.

Change Orders: This section explains how changes are authorized and processed according to the relevant clauses of the contract. Changes orders are one of the areas of greatest contention between the owner and the contractor. Generally, the Architect may instruct the Contractor, with the approval of the Owner and by means of Change Orders, all variations in quantity or quality of the Works, in whole or in part, that are deemed necessary by the Architect. Processing of change orders shall be governed by appropriate clauses of the General Conditions.

Construction Progress Schedule: Time is always a pivotal factor on any project. Project schedules depict project start-up, progress, and anticipated completion dates. It also addresses issues associated with delays and extensions of time to the contract. For example, schedules shall take the form of a progress chart of suitable scale to indicate appropriately the percentage of work scheduled for completion by any given date during the construction period.

Progress Payments: This section specifies how applications for progress payments are to be processed. It states that the Owner/Lender shall make progress payments approximately every 30 days as the work proceeds, on estimates of work completed and which meets the standards of quality established under the contract, as approved by the Project Manager/Architect. Before the first progress payment can be processed under this contract, the Contractor shall furnish a breakdown of the total contract price showing the amount included therein for each principal category of the work, which shall substantiate the payment amount requested to provide a basis for determining progress payments. This section also deals with the withholding of payments and failure to pay issues.

Protection of Persons and Property: This section is intended to address issues relating to safety of both the project owner’s property and the people on the project. It deals with specific issues such as the handling of hazardous materials and emergencies, as well as overall safety programs and requirements. The Contractor shall (unless stated otherwise in the contract) indemnify, hold, and save harmless and defend at his/her own expense the project owner, its officers, agents, and employees from and against all suits, claims, demands, proceedings, and liability of any nature or kind, including costs and expenses, for injuries or damages to any person or any property which may arise out of or in consequence of acts or omissions of the Contractor or its agents, employees, or subcontractors in the execution of the contract.

Insurance of Works and Bonds: This section deals with insurance (including liability insurance) and bonding requirements of the various parties and which should cover the period stipulated and also cover the Defects Liability Period for loss or damage arising from a cause occurring prior to the commencement of the Defects Liability Period and for any loss or damage experienced by the Contractor in the course of any operations carried out for the purpose of complying with the contract obligations.

Examination of Work Before Covering Up: This clause has to do with acceptance of the work by the architect (as agent of the owner). It stipulates how and when the contractor is responsible for uncovering and/or correcting any work deemed unacceptable. Therefore, no work shall be covered up or put out of view without the prior approval of the Project Manager/Architect. The Contractor shall afford full opportunity for the Project Manager/Architect to examine and measure any work which is about to be covered up or put out of view and to examine foundations before permanent work is placed thereon. The Contractor shall give due notice to the Project Manager/Architect whenever any such work or foundations is ready for examination and shall without unreasonable delay advise the Contractor accordingly to attend for the purpose of examining and measuring such work.

Clearance of Site on Substantial Completion: This section essentially stipulates that upon the substantial completion of the Works the Contractor shall clear away and remove from the Site all rubbish, constructional plant, surplus materials, and temporary works so as to leave the whole of the site and works clean and in a workman-like condition to the satisfaction of the Project Manager/Architect.

As-Built Drawings: “As-built drawings,” as used in this clause, refers to drawings submitted by the Contractor or subcontractor at any tier to show the construction of a particular structure or work as actually completed under the contract. “As-built drawings” shall be synonymous with “Record drawings.”

Miscellaneous Provisions: This section deals with various matters such as liquidated damages, taxation, disputes, prohibition against liens, warranty of construction, energy efficiency and other green issues, waiver of consequential damages, etc.

Termination/Suspension of the Contract: Either party has the right to terminate the contract under certain conditions. The conditions under which the parties may terminate or suspend the contract are clarified in this clause. For example, the Contractor shall on the written order of the Architect/Project Manager suspend the progress of the Works or any part thereof for such time or times and in such manner as required by the Architect/Project Manager and shall, during such suspension, properly protect and secure the Works as specified by the Architect/Project Manager. The Project Owner should be notified and written approval sought for any suspension of work in excess of 3 days.

From the above, it is clear that contingencies are generally necessary to cover unknowns, unforeseen, and/or unanticipated conditions or circumstances that are not possible to adequately evaluate or determine from the information on hand at the time the cost estimate is prepared. Contingency allocations specifically relate to project uncertainties of the current known and defined project scope and that may arise and are not a prediction of future project scope or schedule changes. The amount of contingency allocated relates to the amount of assessed risk and should not be reduced without appropriate supporting justification. Furthermore, inclusion of a contingency amount in the cost estimate mitigates the impact of cost increases inherent in an overly optimistic estimate and provides for the opportunity of an earlier discussion of how to address potentially adverse circumstances.

Contingencies in a project budget represent the degree of risk within the estimate and are traditionally calculated as an across-the-board percentage addition on the base estimate, typically based on initial estimates, previous experience, and historical data. This estimating approach has serious flaws because it is generally illogically arrived at and therefore often not appropriate for the project at hand. Moreover, this method of arbitrary contingency calculation is difficult for an estimator to justify or defend. A percentage addition results in a single-figure prediction of estimated cost, which is often unjustified because it does not reflect reality nor does it encourage creativity in estimating practice.

Examples of typical contingency types normally found in budgets and that should be considered when major projects are involved: