A construction contingency is the amount of money allocated to pay for additional or unexpected costs during the construction project. Typically, a calculation of 5 to 10% of the construction budget should be allocated to your construction contingency. This contingency is usually calculated as a percentage. If the phase is 100 days of effort, the 20% contingency would be another 20 days.
As the project progresses, the level of risk decreases as the requirements and problems are known, so the percentage will decrease. In the closing phase, the percentage added could be as low as 5% or none at all. In deterministic methods, contingency is estimated as a predetermined percentage of the base cost depending on the phase of the project. Home builders and remodelers typically allocate between 5% and 10% of a project budget for a construction contingency.
This amount creates enough breathing space for unexpected expenses. Anyone who tracks estimates and costs manually calculates a contingency percentage on top of all costs, before profit margins are applied. Whether made on paper or calculated by hand, these methods offer familiar and accessible estimation options that put budgets and proposals in the hands of customers. However, any price negotiation or recalculation requires careful follow-up and runs the risk of human error.
The design contingency is usually up to 10% of the total construction cost. Although calculated and identified separately, the contingency amount must be an additional amount maintained by the owner in the project budget. The owner keeps the budget and withholds it for use by the architect and designers to ensure that the entire desired scope is covered. A contingency fee is a rate at which you will fill your budget.
As a general rule, 10-15% is commonly used and indicates that the project expects to exceed the budget by 10-15%. You set the rate based on your comfort level, but being too liberal about the rate and setting it low could be detrimental to your finances. Setting the rate too high can also be an impediment to your project, as you'll have to set aside more money than you need to get started.
