‘Contingencies are subjective and should be set to cover the risk of estimating errors or incorrect assumptions, price differences, subcontractor differences, and as well as protection for general project risks.‘
That’s the official word.
In short, a contingency is a reasonable financial buffer to cover the unexpected.
Why should you have a contingency?
To limit your overall financial risk when carrying out a building project. Including a healthy contingency amount in your available funds covers you for the unforeseen, unexpected and unplanned changes along the way.
We estimate all known costs up front and provide you with a breakdown of your project budget. Having a contingency allows us to be honest and transparent about these known costs, rather than bumping them up to try and cover the unknowns, understanding that the contingency only gets spent if needed
If you don’t have a contingency, you could get into a situation that might involve stopping work on your project while additional finances are negotiated. This takes up additional time and can be stressful to both yourself and your team onsite. Having a contingency fund available from the outset is the way round this. This fund is used to keep your project on track and reduce the risk and stress to everyone.
How do you calculate a contingency amount?
A contingency should be proportionate to the overall budget. We recommend somewhere between 10% and 20% for most projects, depending on the work involved. If you are undertaking a riskier project, such as recladding, then we would suggest setting it higher.
As design and planning for your project start well in advance of your build, your initial contingency amount will be set much higher. You could well be a year out from starting your build, so a long way still to go. At this stage you still have a long list of unknowns. You might be waiting on reports from engineers, be exposed to price fluctuations for materials, or haven’t yet made some key design and scope decisions. And as we don’t yet know the full extent of these items, or their implications, we acknowledge and cater for them with a lager contingency within your budget.
As we move through the process to refine your design, clarify your scope and capture more detailed information on your project, we revise your budget and reduce your contingency. Working in collaboration with your builder during this design phase allows this realistic revision of your budget and contingency to take place.
What sort of things have contingencies been used for in the past?
- Any remedial work to cater for mould, rot or straightening of walls
- Fixing non-compliant works to existing structure, plumbing or electrical discovered while installing new systems
- Changes required due to Council inspection outcomes or other compliance items
- Additional materials or safety equipment required due to changes in conditions on site.
- Asbestos management if discovered once work has started.
- Any unforeseen, unplanned or unexpected events on site.
What if I don’t have a contingency?
You run the risk of delays, additional stress, or even not completing your project. Something none of us want to happen. Hence, we incorporate a sensible contingency amount into all LC Designer Homes budgets.
To conclude, each project contingency is different, as each project is unique, and any contingency not used during your project is a positive result. We work hard during our design and build process, allowing for a practical contingency amount, to limit your risk.