The arithmetic
Contingency is figured on a base. If your below-the-line total is $750,000 and you use a 10% rate on BTL only:
$750,000 x 0.10 = $75,000
If your above-the-line is $180,000 and you figure contingency on above plus below instead:
($180,000 + $750,000) x 0.10 = $93,000
The two methods are $18,000 apart, so write the base on the top sheet, e.g. "Contingency, 10% of BTL". Some budgets also exclude items that can't go over, such as a fixed insurance premium or a completion bond fee, from the base.
What it's for, and what it isn't
Contingency covers risk you know exists but can't price: a rain day that forces a company move, a location that falls through, a week of heavier overtime than planned, a lens that breaks. It should not hold costs you already know about. If the script has a car crash and there is no stunt line, adding the stunt costs to contingency just hides a hole in the budget.
How it's tracked during production
Once shooting starts, the production accountant keeps contingency as its own account in the cost report. When an account runs over, the overage is shown against that account first, and the estimate to complete shows whether the picture as a whole is heading past the budget. A typical line on a weekly report:
| Acct | Description | Budget | Actual to date | ETC | EFC | Variance |
|---|---|---|---|---|---|---|
| 9800 | Contingency | $75,000 | $0 | $0 | $0 | $75,000 |
| 3400 | Grip | $41,000 | $32,500 | $14,200 | $46,700 | ($5,700) |
The producer can choose to cover the $5,700 grip overage from contingency. After that draw, contingency's remaining balance is $75,000 - $5,700 = $69,300.
Common confusions
Contingency is separate from overhead fees and producer fees, which are payments, not reserves. It is also different from the guarantor's own protection: the completion guarantor typically expects contingency to be used before its own money is at risk. The film budget contingency post has more on negotiating the percentage, and the film budget template already includes the line.