Contingency Costs

In Canadian federal procurement, contingency costs are “those costs incurred by not having the goods available when they are required.” That is the definition in the Supply Manual glossary published on CanadaBuys. It describes the consequences of goods being unavailable at the time the buyer needs them.

The glossary links the term to PROC analysis, which is procurement life-cycle costing used where the best value over an acquisition’s useful life is required. The word “contingency” is also used in government costing to mean an allowance for uncertainty, and CanadaBuys uses “contingency costs” in vessel repair and refit guidance. These uses are related but distinct, so the context of a document decides which meaning applies.

Contingency costs in the Supply Manual and PROC analysis

The Supply Manual glossary defines contingency costs as costs caused by not having goods available when they are required. The same entry connects the concept with PROC analysis. In that kind of analysis, the buyer weighs more than the purchase price, because the cost of an acquisition over its useful life can decide which option offers the best value.

Availability, delivery timing and the consequences of delay can therefore form part of a buyer’s analysis. The glossary entry does not create a requirement for bidders to price a separate contingency-cost line.

Contingency as a Treasury Board costing allowance

Treasury Board uses “contingency” in a different sense. The Guide to Costing defines it as an amount established for uncertain items, conditions or events that experience indicates would most likely result in additional costs. It says contingency should be based on cost-uncertainty and risk analysis.

The Guideline on Cost Estimation for Capital Asset Acquisitions adds that contingency is added to a point estimate to produce a risk-adjusted estimate. It is not used to account for changes to an approved project scope. These are government estimating and budgeting concepts used by the buyer.

Contingency costs in vessel repair, refit and modernization

CanadaBuys guidance on shipbuilding, repair, refit and modernization uses contingency costs for expenses directly related to moving a vessel to and from a shipyard or repair facility. The treatment depends on whether the vessel is manned or unmanned and on who is responsible for transportation.

• For manned refits, contingency costs are limited to the fuel for transferring the vessel and exclude crew-transport costs.
• For unmanned refits, the guidance addresses transportation of the vessel and the minimum delivery crew, where applicable.
• Where the Government is responsible for moving the vessel between its home port and the repair facility, the solicitation may identify the transportation costs as a vessel transfer cost added to the evaluation price.

Contingency costs under SACC 1031-2, and contingency fees

The CanadaBuys Practitioner’s Guide for Pricing states that contingency costs are non-applicable costs to the contract under Standard Acquisition Clauses and Conditions (SACC) 1031-2. Risks related to uncertainties in cost estimates are addressed through the contractual-risk profit element instead.

Do not confuse contingency costs with contingency fees. Federal service-contract general conditions prohibit paying a contingency fee to obtain a contract. There, the term means compensation dependent on success in soliciting, negotiating or obtaining the contract.

What contingency costs mean for your bid

Read each solicitation to see which meaning of the term it uses. In vessel work, follow the stated treatment of vessel-transfer or contingency costs and provide the transportation, fuel or crew-related amounts the solicitation asks for. Where SACC 1031-2 applies, do not treat a generic contingency allowance as an allowable contract cost unless the solicitation or contract expressly provides otherwise. Address uncertainty in your cost estimates through the contractual-risk profit element, and apply the contract’s own pricing and cost-allowability rules.