Massive $28M Contingency Burn Exposes Construction Industry Risk Management Gaps

Written by:

Rudi Davis

Date:

16 Sep 2025

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Traditional construction contingency models are proving inadequate in the face of unprecedented market volatility, according to a leading construction attorney who warns that even seemingly conservative risk management approaches are failing to protect projects.

“We had a $16 million pot and a $12 million pot of escalation contingency and we blew through that,” says Lisa Colon, Partner at Saul Ewing, describing a recent project that exhausted what was considered an exceptionally robust contingency fund.

The scale of contingency funds needed in today’s market represents a fundamental shift from historical norms, Colon explains. Recent projects have required separate contingency pools for different risk categories, beyond traditional owner and contractor reserves.

“This was just an escalation contingency. We weren’t even talking about the developer’s contingency and the contractor’s contingency,” she notes, highlighting how layered risk management has become.

The challenge extends beyond simply setting aside larger contingency funds, Colon argues. The entire approach to contract enforcement may need updating.

“The owner can’t take a higher and righteous position when the contractor comes and says, ‘This is what’s happening in terms of pricing,'” she explains. “If the owner is going to say, ‘Well, I have a GMP, and I don’t care, get it built,’ then you may not get it built.”

Projects with insufficient contingencies face a cascade of potential problems, according to Colon. When contractors or subcontractors can’t absorb cost increases, it can trigger payment disputes, liens, and bond claims that create lengthy delays.

“Even if there’s a bond, and your project is free of liens, if the contractor is under a lot of bond claims, it’s the same effect,” she warns. “Your project is not being built timely because the contractor is dealing with claims that it can’t pay.”

Colon advises developers to fundamentally reassess how they approach project contingencies and risk allocation. This means looking beyond immediate cost considerations to evaluate broader market conditions and potential disruptions.

“Developers have to take into consideration, do they want that project to cross the finish line at a price where it is profitable?” she asks. “Then they kind of have to look into a crystal ball and what are the issues that I’m going to have to deal with as an owner trying to get my project across the finish line?”

While the current environment presents significant challenges, Colon sees opportunities for innovation in how projects manage and allocate risk. This might include more flexible contract structures, staged contingency releases, or new approaches to shared risk between owners and contractors.

“We’re only eight months into this,” she notes. “It’s going to be a roller coaster ride.”