RICS's risk guidance explains why a general percentage is less informative than identifying and evaluating the particular risks. [1]
Begin with a complete base budget
First list what is included in the construction price and what you intend to fund separately. Ask for quotations for professional services, direct purchases, approvals and any accommodation or storage you need. Also discuss the building works and proposed occupancy with your insurer before starting, as Aviva’s guidance recommends. [2]
This is a budgeting exercise, not a claim that all these costs arise on every project. Its purpose is to prevent an omitted known item from being labelled an unforeseeable event later.
Make a short risk register
For each unresolved issue, write down what could happen, its likely effect, what information is missing and who will investigate it. Consider both cost and delay. RICS recommends assessing likelihood and impact and choosing a response, rather than treating a reserve as a substitute for risk management. [1]
A practical register might include a design decision awaiting confirmation, a supplier order dependent on final dimensions, or an unresolved interface between work packages. Use project-specific evidence to decide whether those entries are meaningful; do not copy a generic list without review.
Do not double-count allowances
A provisional sum, a contractor's priced risk and the client's contingency are not interchangeable labels. Ask which uncertainties are already allowed for and how their eventual expenditure will be reconciled. RICS's cost-reporting guidance separates committed costs, allowances, changes and residual risk in the forecast. [3]
For a supply-only product allowance, check whether installation and related work have been included elsewhere. NRM 2's definition of a prime cost sum does not make it an all-inclusive installed price. [4]
Decide who can spend the reserve
Keep a record of each proposed use of the reserve and make an explicit approval decision. Label discretionary upgrades separately. Before approving an upgrade, review the remaining risks and ask whether you still have enough provision for the issues that have not yet been resolved.
Review the reserve at design completion, before major orders and when new site information becomes available. A released risk allowance should not be assumed available until the relevant uncertainty has actually been addressed. [1]
Base your contingency on a documented budget, a reasoned risk allowance and a current forecast showing what remains unresolved.