How much contingency should you budget for your project?

iStock_000018980057LargeEvery project budget needs money for contingency. What is a contingency? A contingency is a possible future event that can occur – usually it’s a problem.

Generally, contingencies arise out of ‘unknown conditions’ or conditions that could not have reasonably been known.  Unknown conditions are a fact of construction and on some projects there is no real way to really avoid them. All you can do is prepare for them by putting a money aside in the budget for contingency.

How much contingency you put in the budget depends on how much you know about the project, how the original structure was built, and what you can find out about what you can’t see. In new-construction, the unknown condition generally becomes about whatever is underground.

There are ways to prepare for problems:
In remodeling projects, you might have the original plans or you may do some non-destructive and destructive investigation to find out what is behind walls, underneath floors, and above ceilings. In pre 1970’s homes and buildings you might have paint and pipe insulation tested to ensure they do not contain lead or asbestos.

In new-construction, you may have the ground scanned and soil borings taken and tested to find out what is underground. All “unearthed” information lowers the contingency.

So, how do you plan for contingency? How much should you include it in your budget?

I’ve heard professionals say, “Include 50% more than what you were thinking your project should cost in your budget for contingency”. Why 50%? Why not 100%? That’s silly. If you take a look at professionally recognized cost estimating books, you’ll see that they put a range on contingency country-wide of 5% to 15%. While experience tells me they are right, I also know there are times when contingency can be less than 5% and can well exceed 15%.

The amount of contingency a given project needs depends on how complete and thorough the planning process was, and how many changes an owner makes during construction. The best laid plans are often thrown off by changes. When owners create a thorough and complete plan and don’t make changes during construction contingency is rather predictable.

In my book, I include a table for knowing how much contingency the average person needs on the average residential renovation and new construction project. Here is copy of that chart and information on how to read it:

No Information With As-built drawings With Investigation & Testing
New-Construction

15%

N/A

-5%

Renovation

15%

-5%

-5%

 
Example: Renovation, No As-Builts, Investigated and Tested
                         15%                – 0 %                          – 5%                           = 10%
 

The top row is project information, the left column is project type. Start with the second “No Information” column and select the project type row 15%. If you have a renovation project and you have the most recent construction drawings or “As-Built Drawings”, subtract 5%. If you have completed non-destructive, destructive and testing as-needed, subtract 5%. The remaining amount is your estimated contingency.

You can see from the chart and the example that the more information you have on the project the less contingency generally needed. Use this chart on your next project to help you estimate the amount of contingency you need.

© 2013, RCartright. All rights reserved.

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