| Course | MT382 Construction Cost Estimating |
|---|---|
| Unit | Unit 7 |
| Paper type | Contingency and escalation memo |
| Length | About 770 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT382 Unit 7
Three Allowances, Explained Separately: An MT382 Unit 7 Contingency and Escalation Memo to a Parks Board
[Student Name]
Purdue University Global
MT382: Construction Cost Estimating
Unit 7 Contingency and Escalation Memo
[Instructor Name]
[Date]
The parks district, estimate and forecast rate are composite; the sources cited are real.
Memo
To: Board of Commissioners, Parks District From: Project estimator Date: January 2027 Re: Contingency and escalation in the schematic design estimate
The Totals
The estimate reflects completed schematic design and is a Class 4 estimate under AACE International's building-industry classification (AACE International, 2020). It has five lines. The construction subtotal, including general conditions, the contractor's fee, and bond and insurance, is 13,933,252 dollars. Design contingency adds 1,393,325. Escalation adds 1,031,631. Construction contingency adds 817,910. The total is 17,176,118 dollars.
Design Contingency and Its Ladder
Design contingency pays for work that exists in the finished building but not yet on paper: the details, coordination and small additions that appear as schematic design becomes construction documents. It is expected to be spent, not saved, and it shrinks as the drawings develop. At schematic design it is 10 percent of the construction subtotal, 1,393,325 dollars. At design development it will fall to 6 percent, about 835,995 dollars at today's subtotal; at construction documents to 3 percent, about 417,998; and at bid to zero, because by then the drawings show everything the contractor will price. The board should expect this line to fall, and should be concerned if the total does not fall with it.
Escalation
Escalation is a date calculation, not a risk allowance. Prices in the estimate are January 2027 prices. The construction midpoint, the date around which most construction dollars will be spent, is August 2028, nineteen months later. The case's published construction cost forecast projects 4.2 percent a year. Compounded over nineteen months, that is a factor of 1.0673, or 6.73 percent, applied to the construction subtotal plus design contingency, for 1,031,631 dollars. Cost indexes rise unevenly (Ashuri & Lu, 2010), so the rate is sourced to a forecast and will be updated with each estimate.
Construction Contingency
Construction contingency is the owner's reserve for field conditions and changes after the contract is awarded, such as unexpected soil or a code official's late requirement. It is held by the district, outside the construction contract, and set at 5 percent of all costs above it, 817,910 dollars.
Each allowance answers a different question, so each needs its own base, its own explanation and its own line.
The Order of Application
Because each percentage rests on a different base, the order is printed. Design contingency applies to the construction subtotal. Escalation applies to the subtotal plus design contingency, since the scope added by design growth will also be bought at future prices. Construction contingency applies to everything above it. Changing the order changes the total, so it will not change between estimates.
Why One Blended Figure Would Hide Too Much
The three allowances together equal 23.3 percent of the construction subtotal. Presenting that single figure would be simpler, but it would hide what the board most needs to know: how much depends on the design maturing, how much on the calendar and how much is held for the unknown. If funding were delayed, escalation would grow while the other two stayed the same; a blended figure would show only that the total had risen. Holm et al. (2005) recommend presenting allowances so that their purpose and basis are visible, and the separate lines do that.
What a Three-Month Slip Would Cost
If funding or design delays moved the midpoint three months later, to November 2028, escalation would rise to 7.83 percent and 169,120 dollars more. Construction contingency, applied on top, would add about 8,456, for a total increase of 177,576 dollars. The board can use that figure to weigh the cost of waiting.
How the Allowances Will Be Tracked
Each allowance will be reported separately at every estimate. Design contingency will be shown at its new rate with the dollars released. Escalation will be recalculated from the estimate's price date to the current midpoint. Construction contingency will be reported as a balance once construction begins, with each use listed by cause. The board will therefore always be able to see whether the total moved because the scope grew, because the calendar moved or because the reserve was used.
Requested Action
The board is asked to adopt 17,176,118 dollars as the project budget at schematic design, with the understanding that design contingency will step down at each stage and escalation will be recalculated whenever the schedule changes.
References
AACE International. (2020). Cost estimate classification system: As applied for the building and general construction industries (Recommended Practice No. 56R-08). AACE International.
Ashuri, B., & Lu, J. (2010). Time series analysis of ENR construction cost index. Journal of Construction Engineering and Management, 136(11), 1227-1237. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000231
Holm, L., Schaufelberger, J. E., Griffin, D., & Cole, T. (2005). Construction cost estimating: Process and practices. Pearson Prentice Hall.
The Purdue Global MT382 Unit 7 instructions
Unit 7 asks students to explain the allowances in an estimate to an owner or board in memo form. Each allowance, usually design contingency, escalation and construction contingency, should be defined, sized and justified separately. Instructors expect the memo to say what each allowance pays for, how it was calculated, who holds it and how it will change over time. Escalation should be dated, with a sourced rate and a counted number of months. The order in which percentages apply should be stated, since each rests on a different base. Many sections ask students to price a schedule slip. The memo should end with the action requested from the board.
How this MT382 Unit 7 example is built
Our sample opens with a five-line table of totals and the estimate's class. Design contingency is explained as money for scope the drawings will reveal, with its ladder converted to dollars. Escalation is calculated from price date to midpoint with a sourced forecast and compounding, citing Ashuri and Lu. Construction contingency is described as the owner's reserve outside the contract. A highlighted line states why each allowance needs its own line, and a section prints the order of application. Another explains why one blended figure would hide what the board needs, citing Holm and colleagues. A three-month slip is priced, tracking is described, and the requested action closes the memo, asking the board to adopt the total with the ladder understood.
MT382 Unit 7 rubric: what earns full points
Allowance memos tend to be graded on accuracy, clarity for a non-technical audience and correct separation of concepts. Defining each allowance in plain terms, with what it covers and who holds it, earns the core marks. Rubrics reward escalation computed from a dated price level to a dated midpoint with a cited rate. Printing the order of application shows technical care. Rejecting a single blended percentage, with reasons, shows understanding of what boards need. Pricing a slip gives the board a tool for decisions. A clear request for action shows the memo's purpose. The forecast and classification documents are cited in APA 7, the five-line table reconciles exactly with the text, and the memo stays short enough for a board packet.
MT382 Unit 7 help: mistakes that cost points
Allowance memos often present one combined contingency, leaving the board unable to tell design growth from inflation or field risk. Escalation is frequently given as a percentage with no dates, months or source. Some memos apply each percentage to the original subtotal, which understates the total. Others describe construction contingency as the contractor's money when the owner holds it. The ladder for design contingency is commonly missing, so the board is surprised when the line falls. Before sending, read each allowance's paragraph and check that a board member could say what it is for, who holds it and when it will change. If any of the three answers is missing, the paragraph is not finished.
Get an MT382 Unit 7 example written to your instructions
Memos like this start from an estimate and a set of dates. Supply the ones your Unit 7 prompt gives, or figures from earlier units, with any escalation source the course names and the rubric, and a first memo returns free in 24-48h, contingencies separated by purpose and escalation counted to the midpoint in plain language for a board. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT382 Unit 7 questions, answered
Why escalate to the construction midpoint?
Because work is bought and installed across the construction period, not all at once. The midpoint approximates when the average dollar is spent. Escalating only to the start understates cost, and escalating to the finish overstates it. Some owners prescribe another convention, so check your scenario and state the one you use.
Who holds construction contingency?
It depends on the delivery method and contract. On a traditional lump-sum job the owner usually holds it outside the contract; under construction management at risk, part may sit inside a guaranteed maximum price. Say who controls it and what it may be spent on, because that decides how the board will see it used.
Where can an escalation rate come from?
Published construction cost indexes and forecasts, a cost consultant's projection, or a figure provided by the course. Cite where it came from and when, and note whether it covers building construction generally or a specific market. A sourced rate that later proves wrong is defensible; an unsourced one is not.
Where can I find a free MT382 Unit 7 sample paper?
The full MT382 Unit 7 contingency and escalation memo is on this page, explaining three allowances that bring a recreation center to 17,176,118 dollars.
How is escalation calculated in the MT382 Unit 7 sample?
Nineteen months from January 2027 prices to an August 2028 midpoint at a forecast 4.2 percent a year compound to 6.73 percent, applied to the subtotal plus design contingency.