What Is a Contingency in Construction?

January 25, 2024

When planning a new construction project, home builders can include an amount of money in the budget to cover unforeseen costs. This is known as a contingency.

Typically, a contingency is 5-10% of the total project cost. The exact percentage is usually determined by upper management. But, there are a couple of different ways to determine a contingency.

The first type of contingency is called a design contingency. This includes expenses that are incurred during the design phase of the project. This can be due to changes in building materials or a change to the project scope that increases the overall project costs. This can also include shipping delays and other issues that are beyond your control.

Once the design documents are complete, the project moves into the bidding stage. This is when the contractor can use a bidding contingency to help cover any bid day anomalies that may occur. This can include pricing increases, supply chain problems, and other variables that impact your final bid.

During the bidding phase, some contractors will also use their contingency to cover any change orders they receive from the owner. This practice is not recommended as it can signal to the owner that a contractor isn’t being thorough in their estimating. Instead, it is best to work with a partner that can ensure accurate estimates are made in the first place. This will create a more trusting relationship with the owner and ensure the contractor isn’t nickel and diming the client for small inconsequential expenses.

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