BUSINESS
How to Set Job Contingency
Contractor method for keeping contingency separate from markup and profit.
A contingency is an allowance for uncertainty, not hidden profit. Keeping it separate from markup keeps the estimate honest and the client informed.
THE SHORT ANSWER
How do you set job contingency?
Apply a contingency percentage to the base cost, then apply markup to the cost plus contingency. On $80,000 with 10% contingency and 15% markup, contingency is $8,000 and the price is $101,200.
Define the base cost
The base cost is the estimate before contingency and markup. It should cover known scope, labor and materials.
Apply contingency separately
Contingency is a percentage of the base cost for uncertainty. Ten percent on $80,000 is $8,000, kept as its own line.
- Base cost
- Contingency
- Cost + contingency
- Markup
Mark up the cost plus contingency
Apply markup to the combined base plus contingency. A 15% markup on $88,000 is $13,200.
Show the pieces
The price is base + contingency + markup. On $80,000 that is $88,000 + $13,200 = $101,200. Use the Job Contingency Calculator to keep the split visible.