Construction cost estimates are an indispensable part of the planning and implementation of construction projects, helping to control budgets and ensure investment efficiency. In particular, contingency costs act as a "financial buffer" to cope with risks that arise or price fluctuations during the project implementation process.
Does the construction estimate include contingency costs?
What is construction project estimate?
According to Clause 1, Article 135 of the 2014 Law on Construction (amended and supplemented in 2020), the construction estimate is the necessary cost to construct a project, implement a bidding package, and construction work determined based on the volume calculated from technical design, construction drawing design, work requirements to be performed, and construction norms and prices.
Construction project estimate content
Clause 2, Article 11 of Decree 10/2021/ND-CP stipulates as follows:
“Construction project estimate content
1. Construction cost estimate is the total estimated necessary cost to construct the project determined according to the construction design implemented after the basic design or construction drawing design in case the project only requires the preparation of a Construction Investment Economic - Technical Report.
2. The construction estimate includes: construction costs, equipment costs, project management costs, construction investment consulting costs, other costs and contingency costs. The above cost items are specified in detail at points b, c, d, dd, e, g, Clause 2, Article 5 of this Decree, except for construction investment consulting costs and other costs calculated for the entire project.
3. For projects with multiple constructions, the investor shall determine the total estimate to manage construction investment costs if necessary. The total estimate includes construction estimates and consulting costs, other costs, and contingency costs calculated for the entire project.”
Accordingly, the construction estimate includes: construction costs, equipment costs, project management costs, construction investment consulting costs, other costs and contingency costs. Thus, contingency costs are one of the cost items of the construction estimate.
What is contingency cost?
In bidding, contingency costs are an amount added to the bid price or total investment to deal with risks, workloads, and price fluctuations during the project implementation process. Accordingly, contingency costs are an important part of the bidding process, helping to ensure project feasibility and minimize risks for both the investor and the contractor.
In other words, contingency costs are a component of construction estimates, helping investors and project owners proactively respond to fluctuations and risks that may arise during the implementation process. Understanding the nature, determining a reasonable rate and applying the appropriate calculation formula for each stage and type of project will contribute to improving the accuracy of the estimate, ensuring investment efficiency and implementation progress.
It can be further understood that contingency costs are an amount of money that a business calculates and reserves in the total investment to deal with unforeseen situations that may occur during the project implementation process. This cost is not determined exactly in advance and can arise from many different sources.
Contingency costs typically include:
Provision for inflation:
Due to changes in market prices during project implementation.
Reserve for arising volume:
Because actual workload may differ from original design.
Risk reserve:
To respond to possible risks such as natural disasters, epidemics, technical incidents...
Contingency costs play an important role in ensuring the feasibility of the project, helping businesses proactively respond to unexpected situations and avoid interrupting the implementation process. Calculating contingency costs must be based on scientific basis, experience and specific factors of each project.
How to determine contingency costs
In Clause 7, Article 12 of Decree 10/2021/ND-CP, it is stipulated that contingency costs are determined as follows:
“7. Contingency costs include contingency costs for volume, additional work and contingency costs for price fluctuations, calculated as a percentage (%) of the total costs specified in Clauses 2, 3, 4, 5, 6 of this Article. The percentage (%) for contingency costs for price fluctuations is determined based on the construction time according to the project implementation plan, construction price index suitable for the type of construction work and taking into account the possibility of domestic and international price fluctuations.”
At the same time, Clause 7, Article 4 of Circular 11/2021/TT-BXD stipulates:
“7. Contingency costs in construction estimates are determined according to the provisions of Clause 7, Article 12 of Decree No. 10/2021/ND-CP, specifically as follows:
a) Contingency costs for additional volume and work are calculated as a percentage (%) of total construction costs, equipment costs, project management costs, construction investment consulting costs and other costs.
b) Contingency costs for price fluctuations are determined based on the time and expected progress of the project (calculated by quarter or year) and the construction price index appropriate to the type of construction project, taking into account the possibility of domestic and international price fluctuations.
8. The total budget estimate stipulated in Clause 3, Article 11 of Decree No. 10/2021/ND-CP is prepared according to the instructions in Section 3, Appendix II of this Circular.
9. Adjustment of construction estimates shall be made in accordance with the provisions of Article 15 of Decree No. 10/2021/ND-CP and the guidance method in Section 4 of Appendix II of this Circular.”
Thus, contingency costs in construction include 2 types and are determined as follows:
Contingency costs for additional volume and work: determined by percentage (%) of total construction costs, equipment costs, project management costs, construction investment consulting costs and other costs.
Contingency cost for price fluctuation: determined based on the time and expected progress of the project (calculated by quarter or year) and the construction price index appropriate to the type of construction project, taking into account the possibility of domestic and international price fluctuations.
Authority to use contingency funds
Pursuant to Official Dispatch No. 2175/BXD-KTXD on guidance on the authority to use contingency costs dated May 30, 2023 of the Ministry of Construction , in case the project is within the scope of Decree No. 10/2021/ND-CP dated February 9, 2021 of the Government on management of construction investment costs, within the scope of the approved total investment, the investor approves the construction estimate to be implemented after the basic design, including the contingency cost of the estimate.
Thus, the investor is the person authorized to use the contingency cost within the approved total investment.
Source: https://baophapluat.vn/du-toan-xay-dung-cong-trinh-co-bao-gom-chi-phi-du-phong-khong-chi-phi-du-phong-la-gi-post551845.html
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