This is a relatively new pattern I’ve seen across vendors and clients, and it seems to track with the rise of strict, goal-based projects with fixed-prices and tighter costing controls. Contingency has seemingly “disappeared”, but the prices of the contract have not gone down, in fact, they tend to have gone up.
Here’s how it tends to play out.
In order to keep a firm grip on fixed-price spend and avoid variance on any given deliverable, the client or central finance team insists contingency is held centrally rather than on the vendor’s estimate. On paper, that’s fine: if something goes wrong, you dip into the central pot. In practice, two problems appear.
First, finance teams are often reluctant to release contingency. They treat requests as overspend or evidence of poor project management/implementation. People don’t like losing control or inviting blame, so approvals get sticky. Second, removing contingency from the vendor’s scope strips away whatever flexibility the vendor or delivery team might have to address issues quickly.
For as long as I can remember 1, there was usually a simple contingency line at the bottom of an estimate. It might have been in hours or a percentage, typically 10–20% (sometimes ~5% on a well-scoped waterfall project).
Now, many quotes simply cost about 20% more by default, and any challenge to time or scope turns into a long justification and a tussle over release of funds. Everyone knows the contingency hasn’t really gone; it’s just been moved and hidden. and that’s not much of a win for any of us.
The net effect is less transparency in our quotes and vendor interactions. If a project goes really well, we still “spend the contingency” because it’s already included in the bill. I’d much rather see contingency brought back as a clear line item. But while the push for ever-tighter fixed-price deliveries continues, I don’t expect that transparency to return any time soon.
- ,20+ years[↩]