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How much contingency to put in a construction bid

Every job has things you can’t see at bid time: rot behind the siding, a wall that isn’t square, a material price that jumps before you order. Contingency is the money you set aside for those unknowns. Too little and one surprise eats your profit. Too much and you lose the bid. Here is a plain way to size it.

Contingency is not profit and not overhead

Overhead pays for running the business. Profit is what you keep for taking the risk and doing the work well. Contingency covers the cost of things that are likely to happen on this job but can’t be priced line by line yet. Keep the three separate so you know which one is doing the work when a job goes sideways.

Step 1. Price everything you can see first

Do a real takeoff and price labor, materials, equipment and subs. Contingency is for what’s left over, not a cover for a rushed estimate.

Step 2. Rate the job’s unknowns

• Lower risk: new construction or a simple scope with full drawings, a site you’ve walked, and prices locked by your suppliers.
• Medium risk: remodels where you can see most of the work, partial plans, or materials quoted but not locked.
• Higher risk: older homes, opening up walls, floors or roofs, water or fire damage, unclear owner decisions, or long gaps before the work starts.

Many contractors carry a few percent of direct cost on low-risk work and more on remodels and repairs. There is no standard number. Use your own job history: look at your last ten jobs and see how far actual cost ran over the estimate, and why.

Step 3. Put it on the risky lines, not across the board

Step 4. Decide how the owner sees it

Some contractors show contingency as its own line with a written rule for what it covers and what happens to unused money. Others build it into the line prices. Either can work. What matters is that your contract and exclusions and clarifications say what is covered by the price and what becomes a change order.

Step 5. Add overhead and profit on top

Contingency is part of your cost estimate. Add your overhead and profit after it, using the free bid markup calculator.

Mistakes that make contingency fail

1. Using it to cover a sloppy takeoff. Then it’s gone before the real surprises show up.
2. One flat percentage on every job. A new deck and a 1920s kitchen don’t carry the same risk.
3. Spending it on owner changes. Changes the owner asks for are change orders, not contingency.
4. Never checking the actuals. Track what you used on each job so your next number is based on your work, not a guess.

General education with example numbers only, not legal, accounting or contract advice. How you present contingency to an owner can be affected by your contract type and local law; check with your attorney or accountant.

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