Every bid carries some uncertainty. Drawings are incomplete, owners haven't picked finishes, and nobody knows exactly what is under the ground until it is dug up. Contingency, allowances and alternates are the three standard tools for handling that uncertainty in an estimate. They are often confused, and using the wrong one can cost you the job or the margin.
Contingency: money for the unknown
Contingency covers risks that are real but can't be priced in detail yet: unexpected soil conditions, differences between the drawings and existing conditions on a renovation, or minor scope that will emerge as the design is completed.
There are two common kinds:
- Design contingency covers scope that will be added as the drawings develop. It is larger early in design and shrinks as the documents mature.
- Construction contingency covers risk during the build itself, such as unforeseen conditions and coordination issues.
Contingency is usually carried as a percentage of cost, and the right percentage depends on how complete the documents are and how risky the work is. A renovation of an old building usually deserves more than a new build on a clean site. The contract decides who controls the contingency and what happens to money left over, so read that clause before setting a number.
Allowances: money for the undecided
An allowance is a fixed amount for an item that is in scope but not yet selected. The owner knows there will be light fixtures, flooring or door hardware, but the product hasn't been chosen. The estimate carries a set figure, and the contract adjusts up or down once the actual selection is priced.
Allowances should be specific. State what the allowance includes (material only, or material and installation), the quantity it is based on and how overruns will be handled. A vague allowance becomes an argument later.
Alternates: options the owner can choose
Alternates are separately priced changes to the base bid. An add alternate adds scope, such as a covered patio or upgraded glazing. A deduct alternate removes or downgrades scope, such as a less expensive roofing system. Owners use alternates to fit the project to their budget once bids are in.
Price each alternate as a stand-alone change against the base bid, including its effect on general conditions and markups. If two alternates affect each other, say so in the bid. Our Cemron R-1 School District and Fire Station Expansion estimates both carry priced bid alternates alongside the base bid.
Tip: Never hide contingency inside line items. A padded unit cost is invisible, hard to defend and easy to cut. A visible contingency line can be discussed and justified.
Putting them together
A clear bid summary might end like this:
- Direct cost by division
- General conditions
- Overhead and profit
- Contingency, as its own line
- Allowances, listed individually with their basis
- Base bid total
- Alternates, each priced separately below the total
Presented that way, an owner can see exactly what they are paying for and what is still open. For a walk-through of the rest of the document, see how to read a construction estimate.
