Cost reports, forecasts, contingency

On a stipulated price contract, owners often assume cost control ended when the contract was signed. It did not. Every change, allowance adjustment and unforeseen condition moves the owner's final cost, and the only buffer is the contingency. A good monthly cost report answers three questions in one page: what have we committed, what is coming, and how much contingency is left for the risks we have not met yet.

Learning outcomes

• Lay out an owner's cost report with budget, approved changes, pending and anticipated changes, forecast final cost and variance.
• Explain the difference between the owner's contingency and a contingency allowance inside a CCDC 2-2020 Contract Price.
• Apply sound rules for what contingency may and may not fund, and when to release it.
• Track contingency drawdown against progress and explain the variance to a sponsor.

The lesson

Two numbers the owner must keep apart

The contractor's cost is not the owner's cost. Under a stipulated price contract the contractor carries the risk of its own productivity, buying and overheads. If its steel package comes in over its estimate, that is its problem. The owner's cost is the Contract Price as adjusted by Change Orders, plus anything the owner buys outside the contract. So an owner's cost report is mostly a report on change: what has been approved, what is on the table and what is likely next.

That is also why earned value formulas built on the contractor's cost performance are of limited use to an owner on a stipulated price job. Earned value is still useful for progress (lesson 15 uses it for the S-curve), but the owner's forecast final cost comes from the change log and the risk register, not from the contractor's productivity.

The columns of an owner's cost report

Figure 1 shows the structure most owners use. Each line of the report, usually by WBS element or by major package, carries the same columns.

Three definitions matter. A pending change is one that has been priced or directed but not yet agreed: a quotation under review, or work proceeding under a Change Directive. An anticipated change is one the owner can see coming but nobody has priced yet, carried at the owner's own estimate. Leaving anticipated changes out is the most common way a cost report looks better than the project. The forecast final cost is the current budget plus pending and anticipated changes.

Owner contingency and the contract's contingency allowance

These are different things. The owner's construction contingency sits outside the contract, in the owner's budget, and only the owner decides how to spend it. CCDC 2-2020 also allows a contingency allowance inside the Contract Price. Under GC 4.2 that allowance is included in the Contract Price, it includes the contractor's overhead and profit, its use is authorized and valued through the change process in GC 6.1 to 6.3, and the Contract Price is adjusted by Change Order for the difference at the end. Cash allowances under GC 4.1 work differently again: they carry specific scope, and since the 2020 edition an overrun in one cash allowance can be covered by unspent money in another before the Contract Price goes up [3][4].

Report them on separate lines. If an allowance inside the Contract Price is spent, that is not a draw on the owner's contingency, but an allowance overrun becomes one.

What contingency is for

AACE International's recommended practices treat contingency as money for risks within the defined scope, sized to a chosen confidence level. RP 41R-08 makes two points that owners forget. Contingency is not a source of funds for scope changes unless the estimate set aside a line for them. And contingency should be released as risk retires; its authors say it "should never be held until project completion" [1]. It also recommends keeping contingency as its own control account rather than burying it in package budgets [1].

In practice an owner's construction contingency on a design-bid-build job funds three kinds of change: unforeseen conditions, design errors and omissions, and owner-elected changes. The first two are what contingency is for. The third is scope growth, and the owner's governance should treat it differently: a sponsor approval, a separate code in the change log, and, ideally, a separate allowance. Otherwise the users who asked for extras quietly spend the money meant for buried rock.

Drawdown against progress

A contingency balance means nothing without context. $2.5 million left is comfortable at 45% complete and alarming at 15%. Set a drawdown plan at the start: the contingency you expect to still hold at each month, falling as risks retire. Then compare the monthly forecast of available contingency against it. If you draw down faster than the plan, either a risk has materialized early or the project is spending contingency on scope. Either way the sponsor needs to know.

Northgate worked example

Northgate Distribution Centre (fictional) has a construction budget of $38,000,000 excluding HST: the Contract Price of $34,950,000 with Halvorsen Builders Ltd. (fictional) under CCDC 2-2020, and an owner construction contingency of $3,050,000 (see the Northgate fact sheet). The owner's report below is as at Tuesday August 31, 2027, the same cut-off as the August schedule update in lesson 13. All change and progress figures are illustrative.

Notice the last forecast line. If the report shows the budget "on target" at $38.0 million every month, it says nothing, because contingency absorbs every change by design. The useful numbers are the contingency still available and what it has to cover.

View the data

Line	Amount	Running balance
Owner construction contingency	$3,050,000	$3,050,000
Approved Change Orders CO-001 to CO-003	−$307,000	$2,743,000
Pending changes PCO-004, PCO-005	−$150,000	$2,593,000
Anticipated changes (trends, not yet priced)	−$120,000	$2,473,000
Available for remaining risk		$2,473,000

Illustrative, excl. HST.

Reading the drawdown

At the start of construction the owner's project manager set a drawdown plan that holds most of the contingency through the high-risk months of foundations, envelope and commissioning, and leaves $600,000 at final completion for close-out disputes. Figure 3 compares that plan with the monthly forecast of available contingency.

View the data

Month	Drawdown plan	Forecast available
Mar 2027	$3.05M	$3.05M
Apr 2027	$3.00M	$2.85M
May 2027	$2.90M	$2.80M
Jun 2027	$2.80M	$2.76M
Jul 2027	$2.70M	$2.69M
Aug 2027	$2.60M	$2.47M
Sep 2027	$2.45M
Oct 2027	$2.25M
Nov 2027	$2.00M
Dec 2027	$1.70M
Jan 2028	$1.30M
Feb 2028	$0.90M
Mar 2028	$0.60M

Illustrative. Forecast available = contingency less approved, pending and anticipated changes.

Two things explain the August gap. CO-001, the soft soils under GC 6.4, was a genuine unforeseen condition and exactly what contingency is for. But PCO-004 and CO-002 are owner-elected upgrades. Together they are $144,600, slightly more than the gap. The owner's project manager reports it that way: contingency is healthy at 81% remaining with 46% of the work done, but owner-elected scope is now the main draw, and the sponsor should decide whether to fund the racking-related items from the operations budget instead.

The open risk register supports the balance. The owner's representative's expected value of open risks, mainly winter conditions for the office fit-out, the utility's permanent power date (M7, October 1, 2027) and commissioning of the ESFR system, is about $1.1 million, so the available contingency covers it a little over twice. That ratio, not the bottom line, is what goes on the first page of the report.

Owner's move

• Report changes in three states. Approved, pending and anticipated, each with a date, a source and a contingency category.
• Keep contingency in its own account. Never fold it into package budgets, and keep contract allowances on separate lines.
• Code owner-elected scope separately. Require sponsor approval before contingency funds it.
• Set a drawdown plan on day one. Compare monthly and explain any gap in a sentence the sponsor can repeat.
• Release contingency as risk retires. Holding it all to the end ties up capital and hides real performance.

Common mistakes

1. Leaving anticipated changes off the report. The forecast looks fine until the changes arrive all at once.
2. Reporting the budget as "on target" every month. With contingency absorbing everything, the bottom line never moves; report the remaining balance and coverage instead.
3. Using contingency for wish-list scope. It is then gone when the real unforeseen condition shows up.
4. Mixing the contract's allowances with the owner's contingency. They have different rules and different owners.

Quick quiz

1. Halvorsen's steel package costs it $200,000 more than it estimated. What happens to the owner's forecast final cost under a stipulated price contract?

   1. It rises by $200,000
   2. It does not change
   3. It rises by the contractor's fee on $200,000
   4. It is drawn from the contingency allowance

2. Which of these is a pending change?

   1. A signed Change Order
   2. Work proceeding under a Change Directive with the price not agreed
   3. A risk in the register with no event yet
   4. An unspent cash allowance

3. Under CCDC 2-2020 GC 4.2, a contingency allowance in the Contract Price is spent through:

   1. The contractor's own decision
   2. The change process in GC 6.1 to 6.3
   3. The payment certifier alone
   4. The owner's contingency account

4. According to AACE RP 41R-08, contingency should not be used for:

   1. Identified risks within scope
   2. Unforeseen ground conditions
   3. Scope changes, unless a line was set aside for them
   4. Estimating uncertainty

5. Northgate holds $2,473,000 of available contingency against $1.1 million of expected open risk. What is the best summary for the sponsor?

   1. The budget is on target
   2. Contingency covers open risk about twice, but owner-elected scope is now the main draw
   3. Contingency is too high and should all be released
   4. The project is over budget

Show answers and explanations

1. B. The contractor carries its own cost risk under a stipulated price; the owner's cost moves only through changes.
2. B. Directed but not agreed work is pending. A signed Change Order is approved; a risk with no event is not yet a change.
3. B. GC 4.2 ties the allowance's use and valuation to GC 6.1 to 6.3, with a final Change Order for the difference.
4. C. The RP warns against treating contingency as a source of funds for scope changes.
5. B. Coverage and the cause of the drawdown tell the sponsor more than a bottom line that never moves.

Key terms

Forecast final cost

The current budget plus pending and anticipated changes; the owner's best estimate of what the contract will cost.

Pending change

A change that has been priced or directed but not yet agreed in a Change Order.

Anticipated change

A change the owner expects but nobody has priced, carried at the owner's estimate.

Owner construction contingency

A sum in the owner's budget, outside the Contract Price, for risks within the project's scope.

Contingency allowance

Under CCDC 2-2020 GC 4.2, an amount inside the Contract Price spent through the change process.

Drawdown plan

The planned contingency balance at each period, falling as risks retire.

References

1. AACE International, RP 41R-08, Risk analysis and contingency determination using range estimating (2008), copy hosted by Washington State DOT.
2. AACE International, RP 40R-08, Contingency estimating: general principles (2008), catalogue page.
3. Canadian Construction Documents Committee, CCDC 2-2020 Stipulated Price Contract, GC 4.1, GC 4.2 and GC 6.1 to 6.3. Clause numbers checked against a publicly posted tender copy; buy the form from CCDC.
4. Clark Wilson LLP, What's new in Canadian construction contracting: new CCDC 2-2020 stipulated price contract (March 2022).
5. Goldman Sloan Nash & Haber LLP, New CCDC 2 construction contract: important changes from 2008 to 2020 (February 2022).

Verified on November 6, 2026.

Next lesson in this trackCash flow and the S-curve