📑 Project Management & Bidding · 5 min read
Contingency vs Profit Markup — Keeping Them Separate
Contingency and profit are often lumped into one padding percentage. Kept separate, each is defensible; combined, neither is.
What each one is
| Contingency | Profit markup | |
|---|---|---|
| Purpose | Cover identified risks and estimate uncertainty | Return on capital and business risk |
| Belongs to | The project (drawn down as risks occur or expire) | The contractor |
| Basis | Risk register / estimate class | Market, competition, project risk |
| If unused | Returned or reduces final account | Retained |
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Typical ranges
- Contingency: 3–5% for a full-design tender, 10–15% for incomplete design, up to 20–30% for concept-stage budgets.
- Profit: 8–10% competitive public work, 12–15% negotiated private work, 15–20% specialist or high-risk.
Why conflating them hurts
- A client who sees a single 18% “markup” negotiates it as pure profit and cuts it to the bone — taking your risk cover with it.
- A cost-reimbursable or open-book job needs the split explicit, or you cannot bill correctly.
- Value engineering targets contingency first; it cannot if it is hidden inside profit.
Order of application
Bid = (Direct + Subcontract + Site OH + Contingency) × (1 + Profit%) × (1 + VAT%)
Contingency is added to cost before profit; profit is a margin on the whole cost base; VAT is last.
📑 Using EngEst Pro
EngEst Pro’s Bid Summary takes contingency and profit as separate percentages applied in the correct order, so the client-facing quotation shows risk allowance and margin as distinct lines.
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