What GCs Should Know About Contingency

Any general contractor (GC) who has built a house or overseen a remodel knows how easy it is for perfectly scripted plans to change. From hidden mould behind drywall to delivery delays on materials, many factors can turn the tidiest budget upside down. This is why contingency exists in construction.

Think of it as your project’s safety net: It’s not just a simple “nice to have,” but an absolute must for keeping jobs on track and clients reassured. Keep reading to learn more about this topic and how it affects your career.

So, What’s Contingency in Construction?

In simple terms, contingency is money set aside to handle the “unknowns” in construction. It’s a portion of the project budget (usually between 5-20%) reserved for surprises that aren’t in the original scope but are likely to pop up.

Contingency is an element in construction that’s closely related to allowances. The difference is that contingency caters to the unknown surprises, while allowances are a financial backup for the known elements. Allowances are, for instance, what you need to cover the price range for a material or installation whose price you can’t determine upfront, but you know will be necessary.

One thing you will learn in most of your NC GC license renewal and other continuing education programs is the importance of financial buffers in construction projects. Even though CE may not teach you about contingency directly, you will learn a thing or two about uncertainties in construction and updates that require you to have a backup plan at all times.

What Does Contingency Cover?

The main aim of having contingency funds is to ensure your project doesn’t stall when things don’t go as planned. Remember, construction projects always have variables, and even the best plans often hit a few bumps along the way.

Some of the issues that make a contingency plan necessary are:

• Unforeseen site conditions – You will never fully know what a project site has in store for you until work begins. Sometimes, when digging or working on-site, you discover problems like unexpected soil conditions, underground obstacles, and even environmental issues that weren’t visible during the initial assessment.
• Material price fluctuations – It’s not unusual for material costs to vary throughout the course of a project, driven by factors like supply chain delays, availability, and market shifts.
• Design changes – Design features change all the time, and clients can change their minds anytime, pushing you to add new elements to the project. Since these adjustments often affect the cost, you need contingency funds to make such decisions without stalling the project.
• Delays – There are also times when weather, labour shortages, and other external factors cause delays. Such delays bring additional costs due to labour or equipment rental, so having a contingency plan will help.

How to Manage Contingency Wisely

To make your contingency plans work great, consider using the following tips:

1. Set a proper amount – One thing we can all agree on is that the “right” amount depends on the situation (project size, complexity, location, and such). For smaller remodels like bathrooms and kitchens (high-risk), it’s wise to allocate 10-20% of the total project value, since such projects are associated with a high occurrence of nasty surprises.

For new builds (medium-risk), 5-10% should work, unless you’re dealing with tricky sites or high-end custom details. Set aside close to 5% for commercial projects (low-risk), since the planning phase is usually more thorough.

2. Document everything – If you dip into contingency, note why, how much, and when. Transparency is crucial.

3. Never treat it like play money – Resist the urge to use contingency for upgrades or scope creep. Always stick to genuine surprises.

4. Keep clients updated – If you tap contingency, make it a habit to explain immediately, backed by photos or inspector notes.

5. Require a proper approval process – Have a strict approval system where stakeholders carefully evaluate and authorise contingency use before releasing funds.

6. Monitor spending regularly – Make sure to track every expense to ensure that every allocated amount is used efficiently and transparently.

Keep Learning to Excel in Your Career

Contingency isn’t a cushion for sloppy planning. Rather, it’s the reality check every construction project needs. For every general contractor, it’s the difference between being seen as a trusted partner or a contractor who constantly “finds problems”. So, make sure to build it into all your projects for higher chances of success.

Also, keep learning to understand the different concepts of your career better. Visit rocketcert.com today to take CE courses that not only help you renew your licence easily but also equip you with information you probably won’t find elsewhere.