7 Reasons Every Homeowner Needs a Construction Contingency
In the beginning stages of a renovation, the last thing people want to think about is a construction contingency. There are so many expenses to plan for, why add another? Let’s get into the 7 reasons why every homeowner needs a construction contingency in their budget.
Planning a home renovation is an exciting time full of potential and new possibilities. But before you get too carried away with your vision, it’s important to consider the risks that can arise during any construction project. That’s where a construction contingency comes in.
A contingency is one of the many line items in a renovation budget. Like permit fees and building materials, it’s just one more expense homeowners need to plan for before kicking off construction. And honestly, it’s probably the most important.
From protecting your investment to giving you peace of mind, we’re covering the 7 reasons why a construction contingency is an essential part of any home improvement project.
Let’s get started.
What’s a Construction Contingency?
Definition
A construction contingency is a safety net built into a construction project’s budget to account for unexpected expenses or issues that may arise during the project’s lifecycle. Think of it like an “emergency fund” for construction projects. It may not be the most glamorous part of construction, but it’s an essential one.
Sizing Your Contingency
Contingencies are typically expressed as a percentage of the total project cost and can range from 5-10% of the cost, depending on the project’s complexity and the degree of risk involved.
For example, a new construction project may need a smaller contingency budget than a rehab, because the expenses are more predictable. When it comes to rehabbing, you never know what you’re going to find behind the walls. It’s always a good idea to keep a little extra in reserves just in case.
Now that we know what a construction contingency is let’s dive into the 7 reasons why every homeowner needs one in their budget.
1. Unforeseen Expenses
Chances are, there will be unforeseen expenses in your renovation project. This isn’t a guarantee, but it’s more likely than not. Speaking from experience, my mom and I have never completed a home renovation project without adding expenses to our budget, both small and large. Whether it’s a broken light fixture or termite damage remediation, you never know what you’re going to come across when you start a home improvement project.
Even the most meticulous planning can’t account for everything. A construction contingency ensures that you have the funds available to cover any unexpected expenses that may arise during your project.
2. Material Price Increases
Unfortunately, building materials are not immune to price fluctuations. Like all goods and services, they fluctuate in value with changes in the market and economy. Unforeseen supply chain disruptions, a sudden increase in inflation, or a steady drop in demand can all influence the cost of your building materials.
You may start your project with a budget that accounts for the current cost of materials, but what happens if the prices of those materials increase mid-project? Having a contingency can help cover these price fluctuations and keep your project on track.
3. Weather Delays
Weather can be unpredictable, and it can have a significant impact on your construction project. Rain, snow, wind, and extreme heat can all cause construction delays or damages to your property.
Last winter, our renovation project lost heat during a snow storm, which resulted in multiple pipes bursting in the main floor. By the time our plumber found the damage, there was water puddling on the hardwood, holes in the ceiling, and a broken HVAC system that desperately needed repair.
Thankfully, we hadn’t touched our 10% construction contingency budget yet, so we were able to cover the additional costs that came with the remediation efforts. Having a construction contingency is truly a lifesaver in these tough moments.
4. Change Orders
A change order represents a modification to an existing construction contract. Any party in the contract, whether its the contractor, subcontractor, or even the homeowner, can initiate a change order. But, sign off is required by all stakeholders before the amendment can be finalized.
Change orders come in all shapes and sizes, and can have a material impact on your budget. It’s important to have a construction contingency available to absorb any increases in costs associated with a change order.
5. Code Violations
When you renovate your home, you need to ensure that your project complies with local building codes. Each jurisdiction has different codes and fines associated with them, so it’s important that you and your contractors are taking a proactive approach to stay in compliance. If you discover that your project violates these codes, you’ll need to make changes to bring the home up to code.
These updates can be expensive, and code violation fines will only add to your costs. Having a construction contingency allows you to react quickly to these changes in order to keep your project on track.
6. Contractor Mistakes
Even the most experienced contractors can make mistakes. But fixing these mistakes comes at a cost. Whether it’s a massive oversight or a minor error, mistakes add up over time and can result in additional costs or delays in your project. Having a contingency can help you cover the costs of fixing these errors and keeping your project on budget.
If you’re looking for a reputable contractor for your renovation project, check out our 6 Must-Know Tips Before You Hire a Home Improvement Contractor so you can move forward with confidence.
7. Peace of Mind
Perhaps the most significant reason why every homeowner needs a contingency is to provide peace of mind. Renovating your home can be stressful, and unexpected expenses only add to the headache.
Having a construction contingency ensures that you have the funds available to cover unexpected costs, giving you the peace and confidence you need to make it through this stressful renovation.
This post is all about the importance of a construction contingency.
