Contingency (construction budget)
What is a construction contingency, and what happens when it runs out?
ONE OF 180 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A contingency is the part of a development's budget set aside for costs that will arise but cannot yet be named — ground conditions, design changes, price rises. It absorbs an overrun first; once it is gone, the lender stops funding until the developer puts in more equity, because the test at every drawdown is that the money left still finishes the job. The lender's quantity surveyor sizes it for the project rather than to a rule of thumb, and watches how fast it is used: a contingency spent early is a forecast of the overrun still to come.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
// SUBSCRIBE
The Lab.
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · THREE PDFS
An interview case, an annotated credit paper, and a one-page loan application sheet.
No spam. Unsubscribe anytime. Educational content only.