A contingency you can defend

Ask where a five per cent contingency came from and the answers fall into a small number of categories: it is what we always use, it is what the client expects, it is what fitted the budget.

None of those survives the question a client asks when the contingency is being spent: what was it for?

What a register contains

One row per identified risk, with:

• Description. Specific enough to be recognisable. "Ground conditions" is a category; "unrecorded services in the yard area requiring diversion" is a risk
• Owner. The party carrying it under the contract, and the person responsible for managing it
• Probability. A percentage, or a band, applied consistently
• Cost if it occurs. A range where genuinely uncertain, a figure where not
• Expected value. Probability multiplied by cost
• Status. Open, occurred, closed, or superseded
• Mitigation. What is being done, and by when

The expected value column, summed, produces the allowance. That number will not equal five per cent, and that is the point.

Where the discipline pays

When a risk occurs

The event was identified, its cost was estimated, and the allowance existed for it. The report shows the risk moving from allowance to actual cost, and the anticipated final cost does not move.

Without a register, the same event appears as an unexplained increase, and the client's question is why nobody saw it coming. Frequently somebody did.

When a risk passes

Underused. A risk that has not materialised and can no longer occur should be closed and the allowance released. That release is good news to report, and it is available only where the allowance was itemised.

At tender and appointment

A register is a much stronger basis for a conversation about budget than a percentage. It moves the discussion from how much contingency to which of these risks the client is prepared to carry.

Keeping it current

Registers decay. The failure mode is a document built at inception, presented once, and never revisited, so that by month six it describes a project that no longer exists.

Review it on the same cycle as the cost report. Four questions each time:

1. Has any risk occurred? Move it to actual cost.
2. Has any risk passed? Close it and release the allowance.
3. Has any probability or cost changed materially?
4. Has anything new emerged?

Fifteen minutes a month, and the register stays worth something.

Risk allocation is not risk management

A contract that allocates a risk to the contractor has not removed it. It has decided who pays if it occurs, and the contractor has priced accordingly, or has not and will claim.

An employer who believes a risk has been eliminated because it was allocated will discover otherwise, usually through a claim or through a contractor in difficulty. The register should record risks that the contract allocates elsewhere, marked as such, because they still affect the project.

What a client should see

Not the whole register every month. A short summary: total allowance, movement since last report, risks that occurred, risks closed, and the two or three largest open items with what is being done about them.

The full register sits behind it, available when asked, which is usually the month something has gone wrong.