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The Importance Of Having A Contingency

During a commercial renovation, there is a lot of pressure to finish on schedule, stick to your budget and maintain quality standards. This is where construction contingency comes in, but what is it and why is it important?


What Is A Construction Contingency?

In commercial construction, contingency refers to money (often a percentage of the total cost of the project) that is kept aside in order to cover unforeseen expenses after construction starts. It’s used to help the team manage additional costs that come from unforeseen factors such as extreme weather conditions, supply issues or even last-minute design changes. Essentially, the contingency acts as a safety net for unforeseen costs.

Types Of Construction Contingency

There are different contingencies for every party involved in a commercial project.

The types are typically divided into the following categories:

  • Contractor – As a contractor, our aim is to investigate and uncover as much as possible of the existing site before the project build starts to ensure the client has as much detail as possible in terms of consideration of costs and functionality before we start physical work on-site, we do this by making investigative holes in existing surfaces to assess existing services, voids and sub-surfaces, we will also check any existing M&E to check if this is salvageable (if required) and to what degree, before we start. There will always be an element of the unknown, for which it’s advisable to hold a percentage for contingency. This amount gets set aside for any unexpected costs such as the possibility of unearthing any hidden issues when getting deeper into stripping away the existing surfaces, unexpected price increases of the designer's specified material, potential damp issues etc.

  • Owner – The amount set aside to cover any changes that are made by the owner. This could be resource changes, design changes or adjustments to project and staff scheduling, along with staff requirements. Most owners will request that any unused owner contingencies be used to improve the project.

  • Designer – The amount set aside in case alterations are made to the project due to unforeseen circumstances such as unavailability of material or required upgrades.

Why Is Having A Construction Contingency Important?

You can’t plan for the unexpected, but having a contingency is the next best thing!

If the unexpected is to happen during a commercial renovation, a construction contingency will ensure that no shortcuts have to be taken in order to make up for the delay or extra expenses.

Even though everyone involved in the project will have a detailed plan on what it will take to complete the project, there are a number of factors that can contribute to the need for contingencies, for example:

  • Deadline

  • Budget

  • Timeline

  • Design plan

  • Resource schedule

How Do You Calculate Construction Contingency?

Every project is different and calculating the contingency will depend on the scale of the project and the potential risks. However, most projects use a rate of 5% - 10% from the total budget to determine contingency.

In short, calculating the amount of contingency is a balancing act. There just needs to be enough funds to cover any uncertainties and keep the project moving forward.

Important Elements Of A Construction Contingency

As well as the monetary value of the contingency budget, a construction contingency should also include a well-drafted process of how to access the contingency budget and clear circumstances that warrant accessing the budget.

The purpose of the contingency is to soften the impact of risks that could potentially occur. Without this in place, the risks can have a significant impact on the entire project. Contingency planning is a must if you’re trying to ensure a smooth and successful renovation.

Do you need help with your commercial renovation? Get in touch today!

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