Why use Contingency Funds?
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 Site Alert #29 |
Your engineer uses current market prices for goods and services to estimate the base budget of a project, then builds in a buffer called a contingency. The size of the contingency is generally set at 5% for new construction and at a slightly higher 7% for reconstruction projects.
These funds are set up to provide a mechanism to pay for the unknowns that arise during the course of construction. These could be for add alternates, items that were mistakenly omitted from the original budget, unforeseen soil or
environmental situations, or to pay for weather delays or items like asphalt and fuel price adjustments. By using
contingencies, you don’t have to delay construction or incur headaches while you locate additional funds; the money is there for authorization. It’s a rare project that doesn’t have to use these funds.
The most common use of contingency funds is unforeseen site conditions. Once an excavator is on site, the contractor may find geologic conditions that differ from the soils study, a buried fuel tank or contaminated soils, organic matter that needs to be removed, or higher groundwater conditions. For building renovations, you may find unexpected asbestos or undersized beams that need to be upgraded. Perhaps the building code was updated since the design was approved. You’ll need to reimburse a contractor to address these issues too.
Contingencies are also used to add value to a project. For example, an owner may decide to move a drywall partition to make room for new equipment they decided to purchase. Additional windows, a security system, or landscaping may be desired. The owner may want to take advantage of new energy saving devices or technology that may not have been on the market at the time of design. The best time to install these items is while the contractor is mobilized. It’s useful to have contingency funds available to pay for these value-added items.
Lastly, the funds can be used to pay for quantities that may have been underestimated to begin with. This is where a good estimating team comes into play. It’s always best to have a project that is built as close as possible to the original budget. Your estimator should have a thorough understanding of drawings; a knowledge of building materials, methods, and customs; construction experience; and the ability to collect, classify, and evaluate data needed to develop an estimate. Many designers and contractors join their local chapter of the American Society of Professional Estimators. This is a good resource for learning and honing your estimating skills.
If you have questions on estimating or need an engineer’s estimate prepared, contact Tim Gawenus, P.E. at 585-334-1310 or at tgawenus@fisherassoc.com.
These funds are set up to provide a mechanism to pay for the unknowns that arise during the course of construction. These could be for add alternates, items that were mistakenly omitted from the original budget, unforeseen soil or
environmental situations, or to pay for weather delays or items like asphalt and fuel price adjustments. By using
contingencies, you don’t have to delay construction or incur headaches while you locate additional funds; the money is there for authorization. It’s a rare project that doesn’t have to use these funds.
The most common use of contingency funds is unforeseen site conditions. Once an excavator is on site, the contractor may find geologic conditions that differ from the soils study, a buried fuel tank or contaminated soils, organic matter that needs to be removed, or higher groundwater conditions. For building renovations, you may find unexpected asbestos or undersized beams that need to be upgraded. Perhaps the building code was updated since the design was approved. You’ll need to reimburse a contractor to address these issues too.
Contingencies are also used to add value to a project. For example, an owner may decide to move a drywall partition to make room for new equipment they decided to purchase. Additional windows, a security system, or landscaping may be desired. The owner may want to take advantage of new energy saving devices or technology that may not have been on the market at the time of design. The best time to install these items is while the contractor is mobilized. It’s useful to have contingency funds available to pay for these value-added items.
Lastly, the funds can be used to pay for quantities that may have been underestimated to begin with. This is where a good estimating team comes into play. It’s always best to have a project that is built as close as possible to the original budget. Your estimator should have a thorough understanding of drawings; a knowledge of building materials, methods, and customs; construction experience; and the ability to collect, classify, and evaluate data needed to develop an estimate. Many designers and contractors join their local chapter of the American Society of Professional Estimators. This is a good resource for learning and honing your estimating skills.
If you have questions on estimating or need an engineer’s estimate prepared, contact Tim Gawenus, P.E. at 585-334-1310 or at tgawenus@fisherassoc.com.
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