## Define what the allowance represents
The [HM Treasury Green Book 2026](https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-government/the-green-book-2026) defines contingency in a government business case as an allowance covering residual risks. It comprises the remaining optimism-bias adjustment plus the value of risk that has not been prevented.
The same guidance describes optimism bias as a tendency to be over-optimistic about key assumptions. It says capital and operating costs are typically higher, and delivery time longer, than practitioners originally anticipated.
It calls for explicit adjustments at the start of an appraisal by increasing estimated costs and timeframes and decreasing estimated benefits.
The [Infrastructure and Projects Authority cost-estimating guidance](https://www.gov.uk/government/publications/cost-estimating-guidance/cost-estimating-guidance) describes anticipated final cost as the base cost estimate, adjusted for estimating uncertainty, plus project contingency for expected risks. It also says the cost estimate must show a range of possible values reflecting confidence in the estimate.
For risk spending, the IPA guidance calls for optimistic, median and pessimistic values to be evaluated.
Those documents are public-project appraisal guidance. In the Bricks & Yield example, 5%, 10% and 15% are controlled property-model sensitivity inputs, not recommended contingency percentages.
## Calculate three works cases
Use this calculation:
**Contingency amount = base works budget x scenario percentage**
For a controlled GBP 25,000 works budget:
| Scenario | Contingency | Revised works budget |
| --- | ---: | ---: |
| 5% | GBP 1,250 | GBP 26,250 |
| 10% | GBP 2,500 | GBP 27,500 |
| 15% | GBP 3,750 | GBP 28,750 |
The [BRRRR cash snapshot](/tools/brrrr-cash-snapshot) compares purchase, acquisition costs and works with a refinance loan based on post-refurb value and LTV. Running the three revised works totals as separate snapshots preserves the base, selected and downside cases.
## Keep the delay calculation visible
The IPA guidance says material or critical risks should be documented and handled separately from overall contingency. It gives schedule risk as an example of risk or uncertainty that can require mitigation.
The [bridging loan cost calculator](/tools/bridging-loan-cost-calculator) controlled example uses GBP 112,500 at 1% monthly for six months. Monthly interest is GBP 1,125, so a three-month delay adds GBP 3,375 before any extension fee.
## Revise the scenarios as evidence improves
The IPA guidance says contingency should be revised as scope and risks become more defined. The Green Book says more specific risks should be estimated as an appraisal develops, with the optimism-bias adjustment reduced in proportion to risk that has been prevented.
The [due diligence checklist](/tools/due-diligence-checklist) covers condition and document records and prompts an appropriate condition survey. Its controlled workflow pauses the deal until both red checks clear and converts amber checks into conditions or price adjustments.