Understanding Grant Terminology: Contingency
Over the next couple of months, I’ll be unpacking some common grant terminology and “buzz words” in a series of blog articles to help demystify the grant writing process. If you find these resources valuable, stay tuned for a workshop in your community, or join me virtually for a grant writing webinar (watch this space, dates to be announced shortly!).
Whether you’re approaching your first grant application or looking to refine your grant writing and project planning toolkit, I hope you find these terminology-focused blogs useful!
What Is A “Contingency”?
According to the Oxford Dictionary, contingency means a provision for a possible event or circumstance. So what does that mean in a grant writing context?
When planning your project and crafting your grant application, consider contingencies in your project timeline, grant budget, and as part of your overall risk management.
It’s not uncommon for minor (or even major) changes or disruptions to occur when delivering any project! Consider how you can demonstrate that you have planned for potential speed bumps in your grant application. This will help strengthen your project planning and assure the funding body that your project is viable.
This is also crucial for you or your organisation’s risk management, to ensure there are no nasty surprises along the way.
Thinking About Financial Contingencies
When I’m working with a client to apply for an infrastructure grant or major event funding, budget contingencies always form part of our discussion and planning.
Here are some examples:
Festivals and major events have complex budgets with many moving parts. From traffic management to waste management, hiring fencing or running a bar, live entertainment costs, staffing, marketing, signage and more…I encourage clients seeking funding for major events to build a contingency amount into the event budget. Think about:
What level of budget contingency will “help you sleep at night”? Allocating a percentage of funds (e.g. apply a budget contingency of 10% on top of the total projected expenditure) or a nominal amount (e.g. $2,000 to cover budget fluctuations) are both viable approaches. The scale of your event, availability of cash reserves and your risk appetite should be considered when choosing a budget contingency method.
What are your event dates? If you’re gathering quotes and creating a budget well in advance of your event, it’s more likely that costs may change over time. Discuss price increases with suppliers - are they happy to honour the quoted price in line with the event date? Or, ask if their price list is due to increase at the start of a new financial or calendar year, and if they can base their quote on these future costs.
How will you meet any shortfall in funds? Are you expecting the funding body to pay for this, or do you or your organisation have cash reserves to cover budget blow-outs? See “Can I ask the funder to cover contingency costs?” below.
Infrastructure projects should consider fluctuations and price escalation of construction/trade labour and materials (remember the price of steel reaching record heights during COVID-19?). Think about:
Should you contact a Quantity Surveyor? A QS estimate may be a mandatory requirement from the funding body. Quantity Surveyors provide independent oversight that construction costs have been appropriately estimated and normally include a contigency. In other cases, you may need to gather 2 or 3 comparable quotes from different suppliers. Regardless of the grant requirements, obtaining a QS estimate or multiple quotes is sound, best practice planning that will give you confidence about your costings.
Discuss price increases with suppliers. Are they happy to honour their quote if construction doesn’t commence until next year, or can they provide a cost increase projection based on your desired construction dates? Some trades build contingencies into their quotes as standard practice, some may not - make sure you ask questions and be transparent that your infrastructure project is subject to grant funding.
Can I Ask The Funder To Cover Contingency Costs?
Unfortunately, there is no one-size-fits-all answer to this! It’s dependent on the individual funding body and eligibility criteria in the grant guidelines.
Most grant guidelines will detail eligible and ineligible grant expenditure. If budget contingencies aren’t explicitly mentioned in the guidelines, it’s worth a phone call to the funding body to ask!
Some funding bodies welcome a contingency line item as part of your budget, and from an assessment perspective, it demonstrates sound project planning and consideration of the many “what ifs” of delivering a project. However, whether or not the funder will allow you to use grant funds to pay for that contingency varies greatly.
Some examples I’ve seen in the last two years:
A state government infrastructure grant program permitted a budget contingency of up to 20% as part of the applicant’s request for grant funds. Interestingly, the guidelines had changed from one round of the grant (no contingency allowed) to the next (up to 20%). This was due to significant price fluctuations in construction costs during COVID-19 that left previous grant recipients with no financial buffer to mitigate unprecedented price escalation.
The guidelines of a local government community grant program did not mention contingencies. A phone call to the relevant grants officer confirmed that a small contingency for this community festival (approx. 5% of the total event budget) would be accepted as part of the grant fund request.
Factoring In Timeline Contingencies
Funding bodies for infrastructure grants will encourage (or it may be a mandatory requirement) grant applicants to add contingency time to the project timeline, project plan and/or risk management plan.
Big or small, infrastructure projects have complex delivery milestones that can be disrupted due to external factors that may be outside your control, no matter how watertight your project planning is! Wet weather or natural disaster, supplier delays (sourcing materials or labour), unexpected staff absences and even a public health crisis (2020, anyone?) can derail best laid plans.
Factor in contingency time to ensure realistic delivery expectations internally and demonstrate best practice project planning to the prospective funding body. If you’re working with a quantity surveyor or multiple suppliers to determine costs and timeframes, lean on their expertise for realistic, industry-standard contingency time and build this into your grant application.
What If I Have Grant Money Left?
If your grant application is successful and the funding body allows you to use grant funds towards contingency costs, don’t forget to monitor all project expenditure and keep transparent records.
If you don’t use all the grant funds allocated for contingency costs, then you may be able to use these funds elsewhere on the project. In some cases, you may also need to return unspent grant funds. We’ll look at budget variations in the next blog post!
If you found this useful, or have an experience with contingencies in the grants world you’d like to share, leave me a comment below!
