In construction, contingency refers to a specific amount of money set aside within your contract to cover any unforeseen circumstances or costs. Think of it as a financial safety net. It’s there to help you manage any unexpected surprises.
As a contractor, you can advise your clients or design teams to include a contingency sum in the contract.
Why is Contingency Important?
Think about this: You start a project, and everything seems fine. But then you discover that the damp proofing design for the basement isn’t fit for purpose due to a rising water table. If you have a contingency in place, you can cover these unexpected costs without derailing your project budget.
However, if there’s no contingency in your contract, this will fall outside the agreed on contract sum. This means any extra expenses will be treated as variations, which can’t be costed against a contingency. Suddenly, you’re left scrambling to find funds for issues that could have been taken into account.
Planning for Contingency
Consider contingency at the very start of your project, preferably before the tender stage and then add it to your contract price. Once the project begins, it’s too late to think about adding a contingency sum.
For example, let’s say you start a project in November, with block laying scheduled for early February. Then, all of a sudden, there’s a weather change: three weeks of solid rain. This delays the whole project, pushing out timelines and increasing your costs.
Having a contingency in place could help soften the blow and keep your project on track.
The Benefits Contingency
Setting out contingency in your contract is beneficial for the success of your project in various ways:
- Handle Surprises: Factoring in a contingency fund makes sure you’re prepared for anything unexpected surprises that come up on site.
- Stay on Budget: With a contingency in place, you can manage unexpected costs without tearing through your budget. Good news for your cash flow and keeping your client happy. A win-win all round.
- Manage Cost Risk: Preparing for potential setbacks allows you to reduce financial risk in your project.
Conclusion
Understanding and planning for contingency in construction protects you and your clients from unexpected expenses so your project runs on time, no matter what surprises might come up.
At Carroll Estimating, we work with contractors every day to help them make more profitable builds with ease. Contact us today at Carroll Estimating to learn how our team of professional QS and Estimators can support you.