What are my options for applying a cost contingency/reserve?

[NathanG]

We're finding that our organization's COST estimates are typically
underestimated. We deliver our projects on-time, but rarely on budget.
We've decided to add a 10% contingency reserve to all of our fixed bid
projects. The challenges are...

1) our paying clients receive a copy of our project plan file in addition to
the Statement of Work
2) the client would be upset if they saw a line item in the project plan for
"contingency", so I need to add 10% to each task
3) the client knows the rates of our resources and can do the math, so the
cost ultimately has to be adjusted via the effort/work
4) the duration of the tasks/deliverables/project should not be impacted by
the 10%
5) I'd prefer not over-allocate resources (i.e. make all tasks fixed
duration and show each resource as doing 8.8 hours of work in an 8 hour day),
as I like to utilize the resource leveling feature
6) this "reserve" will not be refunded to the client if it's not used, at
this time, as a number of our projects have gone over-budget recently

Sorry to be so restrictive, but I wanted to provide a complete set of
"requirements". Can anyone help me increase the project's cost by 10%?
What are my other options?

 

[NathanG]

I'm definitely not in agreement with the "you'll run yourself out of
business" comment. How are your margins calculated? What components make up
those margins?

Anyone else have a solution?

 

[Dave]

If your projects come in on time then surely it follows that the project
estimates (in terms of work required) are good. If that is so, then why
do your projects come in over-cost? Is that a quoted cost prior to the
production of the plan or is it derived some other way/

Why would your customers be unhappy to see contingency on the plan? It
is a standard part of project management. You could even structure the
charges to the customer in a way that they get back the unused part of
the contingency if the contract is suitably constructed.