Contingency allowances and where reviewers push back
Reviewers rarely challenge whether a viability appraisal needs contingency. They challenge whether the same risk has been paid for twice, in profit, in abnormals or in the build rate.
A contingency allowance viability argument almost never turns on whether contingency is legitimate. It turns on whether the same risk has been paid for twice. A reviewer acting for the local planning authority will accept that an appraisal needs an allowance for the costs nobody can specify yet. What they will test is whether that allowance overlaps with the developer's return, with separately itemised abnormals, or with the all-in build rate taken from published cost data.
Get the overlap analysis into the appraisal yourself and the conversation becomes short.
What contingency is meant to cover
Contingency covers quantum uncertainty in costs that are within the scheme's scope. Measurement that turns out to be slightly different from the take-off, a specification clarified upwards during technical design, a subcontract package that tenders above the estimate, minor scope creep that the client agrees to.
It is not meant to cover three other things, and conflating them is where appraisals lose credibility.
Risk events with a known cause and an unknown cost belong in abnormals, priced individually. A changed market, whether in sales values or in build cost inflation, belongs in the appraisal's growth assumptions or in the sensitivity analysis. And the general risk of developing, as against the risk of this particular site, is what the developer's return is there to compensate.
That three-way split is the structure a reviewer reads for. An appraisal that carries a single undifferentiated contingency line and no abnormals schedule invites the assumption that the contingency is doing work it should not be doing.
Typical allowances and how they vary with risk
A straightforward new-build scheme on a clear site typically carries a contingency of around 3 to 5 per cent of build cost in a planning appraisal. Refurbishment and conversion schemes commonly carry more, because opening up an existing building produces surprises that no survey fully removes. Deep retrofit, listed building work and schemes over uncertain ground sit at the top of that spread.
Those are the figures appraisals carry, not figures any guidance prescribes. The Planning Practice Guidance on viability does not set a contingency percentage, and neither does the RICS professional statement on financial viability in planning. Both ask instead that inputs be justified and evidenced, which means the percentage has to be argued from the characteristics of the scheme rather than quoted as a convention.
Three scheme characteristics actually move the number. The maturity of the design, since a contingency appropriate at outline is not appropriate at a fully tendered reserved matters stage. The amount of existing fabric being altered. And the proportion of cost sitting in packages with volatile pricing.
A general sense that the market is difficult is no reason for a higher contingency. That argument belongs in the sales values and the finance rate.
Double counting against profit and abnormals
In a planning appraisal the developer's return compensates for risk as well as for enterprise. The Planning Practice Guidance notes that for plan making an assumption of 15 to 20 per cent of gross development value may be a suitable return to developers, with a lower figure potentially appropriate for schemes with reduced risk such as those with guaranteed income. That logic cuts the other way too. If the scheme's specific risks have been removed from the profit line by pricing them as abnormals and as contingency, the profit percentage should sit towards the lower end of the range rather than the upper.
Reviewers put that proposition directly. You cannot claim 20 per cent of gross development value for risk, itemise every abnormal with a quantified cost from a specialist report, and then add 7 per cent contingency on top of the lot.
The second overlap is with published cost data. All-in rates from a cost information service already reflect the average experience of projects that encountered the ordinary run of problems. Applying a contingency on top of such a rate is normal practice, but applying a large contingency on top of a rate drawn from a comparable project type is harder to defend than applying one to a bottom-up elemental estimate.
The third overlap is the compounding question. Whether contingency is applied to construction cost alone, or to construction cost plus professional fees plus finance, changes the bottom line materially on a long programme. State which you have done. A viability assessment that leaves this ambiguous will have the less favourable reading assumed.
Contingency on abnormals specifically
Abnormals are the area where double counting is both most common and most arguable.
Where an abnormal has been quantified from a specialist report, with a measured quantity and a current rate, the uncertainty remaining is small and a general contingency on top is hard to justify. Where the abnormal is a provisional sum based on a desk study, the uncertainty is large and a specific allowance against that item is entirely reasonable.
| Abnormal | Evidence behind the cost | Defensible treatment |
|---|---|---|
| Remediation of a hotspot quantified by Phase 2 investigation | Measured volumes, current disposal rates | Item cost, minimal added allowance |
| Remediation estimated from a Phase 1 desk study only | Inference from historical land use | Item cost with a stated range, or a specific risk allowance |
| Highway works priced from a section 278 estimate | Highway authority estimate, pre-agreement | Item cost plus an allowance for scope change |
| Piling where ground conditions are known | Site investigation and pile design | Item cost, minimal added allowance |
| Archaeological mitigation before field evaluation | Desk-based assessment only | Specific risk allowance, stated separately |
Present abnormals this way and the contingency conversation changes character. You are no longer arguing about a percentage; you are showing which items carry residual uncertainty and why.
How reviewers test the figure
The district valuer and independent reviewers appointed by councils work through a predictable sequence. They check the contingency against the design stage, since a high allowance at a detailed design stage suggests either that the design is less resolved than claimed or that the allowance is padding. They check whether contingency has been applied to professional fees and finance as well as to build cost. They look for the abnormals schedule and test overlap item by item. And they compare the profit assumption against the risk the appraisal says has been removed.
They also look at what happened on the applicant's other schemes where the information is in the public domain, and at whether the contingency survived into any later submission. An appraisal supporting a reduced affordable housing offer that carries 8 per cent contingency, followed a year later by a section 73 appraisal carrying 4 per cent, is a gift to the authority.
Where the appraisal supports a reduced affordable housing contribution, expect the review to be adversarial in the proper sense. Our note on when an inspector reopens viability at appeal sets out how the same inputs get tested a second time if the application is refused.
Adjusting contingency across a phased scheme
On a multi-phase scheme, contingency should taper. Phase one carries the uncertainty of first-time ground works, utility diversions and the learning curve. Phase four, built to a repeated house type on ground already proved, does not.
A flat percentage across all phases is therefore a soft target for a reviewer. Set it by phase, state the reasoning, and be explicit about which phases carry the infrastructure.
Tapering also interacts with review mechanisms. Where the section 106 contains early and late stage reviews, the contingency drawn down and the contingency released both feed the review calculation, so the drafting should say how unspent contingency is treated. Our piece on affordable housing review mechanisms in a section 106 covers how those clauses are usually built, and an unspent contingency that is simply absorbed into profit is the single most common dispute at the late stage review.
Defending the allowance
Four things make a contingency allowance hold up.
- An abnormals schedule that separates quantified items from provisional sums, with the evidence source stated against each.
- A statement of the design stage the cost plan reflects, and the contingency appropriate to that stage.
- Clarity on the base to which the contingency is applied, and whether fees and finance are included.
- A profit assumption that acknowledges the risk already priced elsewhere in the appraisal.
Where the scheme's affordable housing offer depends on the outcome, the affordable housing statement should cross-refer to the appraisal rather than restate its conclusions, so the two documents cannot drift apart during negotiation.
Viability work is an area where a drafted structure helps and professional input is still needed. A planning appraisal that will be scrutinised by the district valuer should be prepared or reviewed by someone working to the RICS professional statement, and councils expect a suitably qualified author.
Enter your postcode on PlanScope to see which commercial and viability documents a scheme is likely to need, then send the draft for professional review.
This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. For specialist technical reports, qualified professional input may be required. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Frequently asked questions
What contingency percentage should a viability appraisal carry?
Neither the Planning Practice Guidance on viability nor the RICS professional statement sets a percentage. Straightforward new build appraisals commonly carry around 3 to 5 per cent of build cost, with refurbishment, listed building work and uncertain ground sitting higher. The figure has to be argued from the scheme's characteristics rather than quoted as a convention.
Does contingency double count against developer's profit?
It can. The developer's return compensates for the general risk of developing, and the Planning Practice Guidance notes 15 to 20 per cent of gross development value as a possible assumption for plan making, with less for lower-risk schemes. If specific risks are priced as abnormals and contingency, the profit assumption should sit lower.
Should contingency be applied to abnormals?
It depends on the evidence. An abnormal quantified from a Phase 2 investigation with measured volumes and current rates carries little residual uncertainty, so a general contingency on top is hard to justify. An abnormal estimated from a desk study alone does carry real uncertainty, and a specific stated allowance against that item is reasonable.
Is contingency applied to professional fees and finance too?
That is a choice, and the appraisal should state which base was used. Applying contingency to construction cost alone gives a materially different result from applying it to construction cost plus fees plus finance on a long programme. Leaving it ambiguous means the reviewer will assume the less favourable reading.
How should contingency be handled on a phased scheme?
It should taper. The first phase carries first-time ground works, utility diversions and the learning curve, while a later phase repeating a proved house type on proved ground does not. A flat percentage across all phases is an easy target for a reviewer, so set it by phase and state the reasoning.
What happens to unspent contingency under a section 106 review?
That depends on the drafting, and it is the most common dispute at a late stage review. Where a section 106 contains early and late stage review mechanisms, the clauses should say how contingency drawn down and contingency released are treated, rather than leaving unspent contingency to be absorbed into profit.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.