How Much Over an Estimate Can a Contractor Go?

The amount by which a contractor can exceed an estimate varies widely depending on several factors, including the type of project, contractual agreements, and the specific circumstances leading to cost overruns. 

Here are some key points to consider:

Contractual Limitations: In many contracts, especially those involving government projects, there are clauses like the Limitation of Costs or Funds Clauses (LOCC/LOFC) that set a cost ceiling. Contractors generally cannot exceed this ceiling without prior approval from the contracting officer.

Cost Overrun Percentages: In construction projects, cost overruns can range significantly. For residential projects, overruns are often between 10% and 20%. However, larger projects can experience much higher overruns, sometimes exceeding 80% of the original budget.

Recovery of Excess Costs: Contractors may recover excess costs if they can prove that the overrun was not reasonably foreseeable or if there are exceptions to the contractual limitations. This often involves demonstrating that the government or client was not prejudiced by the lack of notice or that the overrun was due to unforeseen circumstances.

Mitigation Strategies: To manage cost overruns, contractors use strategies like accurate project estimates, formal change order processes, and maintaining open communication with clients and stakeholders.

While there is no fixed percentage limit on how much a contractor can exceed an estimate, it is generally constrained by contractual terms and the ability to justify unforeseen expenses.

Solid estimates start the job. Staying compliant keeps it going. Discover how with our other helpful guides.

• New York State Overtime Law: Your Guide to Rates, Statutes, Calculations, and More (2025)
• Utah Break Laws: Meals, Rests, and More (2025)
• Michigan Break Laws: Meals, Rests, and More (2025)
• Nevada Overtime Law: Your Guide to Rates, Statutes, Calculations, and More (2025)

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