Price Escalation and Contingency in Construction Estimates
Two adjustments protect an estimate against the future — escalation for time, contingency for risk. Combining them into one fuzzy percentage weakens both.
Escalation — pricing for time
Your prices have a base date (when they were valid). The money is spent over the construction period. Escalation moves the base-date cost to the expenditure profile — usually approximated at the construction midpoint.
where r is the annual escalation rate and n is the years from base date to the spend midpoint. For a longer job, escalate against an S-curve spend profile rather than a single midpoint.
Choosing the rate
- Use construction-specific indices (tender price index, building cost index), not general CPI — construction inflation often diverges.
- Escalate volatile trades (steelwork, mechanical, electrical) at their own rates where the exposure is large.
- Typical assumption in a stable market: 3–6% per year.
Contingency — pricing for risk
Contingency covers identified risks and the unknowns appropriate to the estimate class: incomplete design, ground uncertainty, coordination gaps. It is drawn down as risks materialise or expire.
Keep them separate
| Escalation | Contingency | |
|---|---|---|
| Covers | Time / inflation | Risk / uncertainty |
| Basis | Index × duration | Risk assessment / class % |
| Behaviour | Always spent | Spent only if risk occurs |
Never apply contingency to an already-escalated figure and then round up again — that is triple padding, and it loses bids.
EngEst Pro keeps contingency as an explicit percentage on the Bid Summary, separate from the priced BOQ, so you can escalate base prices in the Material Database and set risk contingency independently.
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