Contingency is a part of the budget set aside to cover possible project problems.
Generally, contingency is there to cover ‘unknown conditions’ or conditions that could not have reasonably been known. Unknown conditions are a fact of construction and there is really now way to completely avoid them, contingency prepares you for them.
How much contingency you put in the budget depends on how much you know about the project, the age and construction of the structure, and what you can find out about what you can’t see. In new-construction, the unknown condition is generally underground.
There are ways to prepare for these problems:
In remodeling projects, the original plans or some selective demolition can help you 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 can have the ground scanned with penetrating radar, and have bores dug to test and investigate what’s underground. All “unearthed” information can help lower the contingency, though a discovery may also increase your budget.
So, how much should you include for contingency in your budget?
I’ve heard so called professionals say, “Include 50% more than what you were thinking your project should cost in your budget for contingency”. Those people are basically pulling that out of… somewhere.
Professionally recognized cost estimating books, tell you contingency should be between 5% to 15% country-wide, though there are exceptions.
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% |
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.
