What is Contingency and How Does it Benefit Construction Management?
The word “contingency” has many different meanings, depending on the industry you serve or your point of view. In commercial construction, contingency refers to money (often a percentage of the total project cost) reserved to cover project costs that arise after construction starts. A contractor, an owner, or a design professional (aka architect, engineer, etc.) all likely feel that the proper use of contingency within a project stems from different, but justifiable causes.
Design professionals
For instance, a designer assumes responsibility for planning and designing a building that meets the expectations of the owner and complies with all building codes and regulations. However, to design a complete project that identifies every possible section or detail, and also accommodates every possible combination of material, model, or manufacturer is inconceivable. Therefore, in the designer’s eyes, it may be perfectly acceptable during the construction phase to use contingency spend to accommodate variations or updates that need to be made to the “as-bid” plan set.
For example, the architect discovers the brick specified for the project has been recently discontinued, is no longer in stock and only a more expensive brick is available and acceptable.
Owners
In contrast, if an owner is fortunate enough to have contingent funds in their budget, they are likely to prefer that they are used on project betterments. Perhaps to add items to the project that had been eliminated during design or value engineering, or maybe just to incorporate items from their wish list that hadn’t made it into the project initially. It is conceivable to see the justification for this case as well.
If contingency funds are still available late in a project, the owner could use the funds to purchase a higher grade flooring product than was identified on the original plans and specifications.
Contractors
Lastly, a contractor may take the stand that the use of contingent funds is reserved for unforeseen or differing conditions than those outlined in the plans and specifications upon which they based their bid. The contractor often has neither the responsibility nor the ability to know about certain conditions of the project and therefore should be entitled to additional compensation to address the issue, drawn from the project contingency. An example of this is when the contractor discovers old foundations buried on a project site that wasn’t documented on the plans and specifications.
Finding the right partner to guide decision making
Whatever your viewpoint, one thing is clear. Every project should have some measure of contingency included and its acceptable uses defined and agreed upon at the onset, you’re going to need it!
What’s important is having a team that can help guide decision making. As a full-service construction company, Bush combines our expertise in real estate development, architecture and building to provide our customers with a turnkey experience. As one team with one mission – your project – we can work unselfishly and transparently as a group to understand your needs and prioritize contingency budgets. Contact us to learn more about our fully integrated approach.