Construction Contingency Budget? What’s That?
“A construction contingency budget? Why should I need one? I mean, what can be so hard about this? It’s four walls, a floor and a ceiling?” our client asked in disbelief.
Then the contractor opened up the walls…
CONTROL WHAT YOU CAN CONTROL
As I wrote in our most recent post, a proper set of construction documents, schedules and specifications goes a long way in helping you ease your concerns and fears about your renovation project, because you’ve documented all your decisions.
In addition, I encourage you to have your contractor and his subs walk your project, giving them an opportunity to inspect existing conditions prior to their preparing and submitting a price for your review and acceptance.
Essentially, you need to make every effort to control what you can control.
UNFORESEEN CONDITIONS: WHAT YOU CAN’T SEE
What you and your contractor have no control over in a renovation or remodel is what cannot be seen. Those little surprises hidden in the walls, under the floor boards and above the ceiling. They are called “unforeseen conditions”.
Your contingency budget is intended to cover the costs of these unforeseen conditions (plus any additional work you might ask the contractor to do.) In a home remodel or renovation, we recommend at least a 20% contingency budget. For example, let’s assume your construction budget is $100,000. Your actual build budget is $80,000. Your construction contingency budget is $20,000.
Right now, you may be thinking, “But the budget is $100,000, not $80,000.” My response is, “do you have another $20,000 available to cover the cost of possible unforeseen conditions?” If you do, terrific! What this tells me is you can afford an overall construction budget of $120,000 including the contingency.
Part way through construction, we like to avoid the conversation that starts with, “But I can’t afford this! I don’t know where the money is going to come from.” It’s rather unpleasant for everyone…
OUR OWN BATH: THE GOOD, BAD AND UGLY.
In our mind’s eye, we had the wishful thought of $50,000 as our overall budget. Based on our experience, in our hearts we knew if we watched our P’s and Q’s, $60,000 was a far more realistic overall budget, giving us a construction contingency budget of $12,000 with a build budget of $48,000.
We retained Premier Builders Inc., a builder with whom we had worked on a number of projects over the last several years. Based on our drawings, schedules, specs and walk through, they submitted a construction estimate of $45,270.
We were feeling pretty good. We were already “under budget”. On the other hand, we were feeling anxious. What would our contractor find after demolition was complete?
Our biggest fears were:
- Would there be any rotten structural framing in the floor and tub surround walls? (Notorious in bathroom renovations.)
- We have knob and tube wiring throughout the house, discovered during the walk through. How much knob and tube ran through the bathroom other than the bathroom lighting and switching? How much more might we have to replace and upgrade?
- Would there be other surprises??? Our fingers were crossed.
THE GOOD
There was no structural rot in the walls or the floor. YES!!!
THE BAD
Eliminating/replacing the bathroom’s knob and tube wiring was covered in our base contract. Unfortunately, the knob and tube wiring that ran through the walls and to the attic, adjacent closet, bedrooms and stair hall lighting, including the hall’s switching in the foyer below that was uncovered during demolition was not. It would all have to be upgraded per Code, since it was now exposed. More than half the house! OUCH!!! (Note, if you are planning to sell or purchase a house with existing knob and tube, today most banks/lenders will not finance the mortgage nor will insurance companies insure the home.)
The framing around the chimney did not conform to today’s Codes. Since we were touching the framing to install the tub, we were obligated to create the proper amount of air space between the chimney and the combustible framing. On occasions such as this, where the chimney was in obvious good condition and there was no evidence of charring or the existing framing having been exposed to excessive heat, our contractor spoke with the local building inspector and he allowed us to keep the framing as is.
During a previous renovation someone had cut the jack studs to the left of the window. This was an obvious necessary repair.
THE UGLY
It’s called “scope creep” in the industry. It can happen easily and quietly, usually with a conversation that starts something like this. “While you’re here, can you…..” Your contractor is ALWAYS happy to accommodate you. Sally and I were no different. But at least we had a list beforehand…
- Asbestos abatement in the basement and attic. (With grandchildren in the house on a regular basis, we are taking no chances.)
- Repaint all kitchen cabinet doors. They were long overdue…
- Re-caulk the joint between the kitchen countertop and tile backsplash.
- Install two new soap dispensers by the kitchen sink. (Dispensers provided by us.)
- Replace three timer switches for outdoor lighting with new.
- Replace three motion activated security lights. (Lights provided by us.)
- Repair large cracks in wall in walk-in closet on second floor.
OUR Construction Contingency BUDGET REVIEW
Okay, the contractor has been here a month. Let’s see where we stand with the budget.
Original budget estimate by Contractor: | $43,170 |
Contingency Budget: | |
Knob and tube wiring: We decided to do the entire house. | $7,500 |
Asbestos abatement | $3,400 |
Repaint kitchen cabinet doors | $4,900 |
Re-caulk between countertop and tile backsplash | $100 |
Install two new soap dispensers by the kitchen sink. | $150 |
Replace three timer switches for outdoor lighting with new. | $200 |
Replace three motion activated security lights. | $200 |
Repair large cracks in wall in walk-in closet on second floor. | $375 |
Contingency Total: | $16,825 |
NOTE: We got written quotes on all of this work for our review and approval, prior to authorizing the additional work.
Let’s add our original budget estimate and unanticipated costs and see where we stand.
Construction Estimate: | $43,170 |
Contingency Budget: | $16,825 |
Total: | $59,995 |
We’re now almost exactly at our anticipated costs. Considering that most of these additional costs are elective and not work necessary to complete the bathroom, we’re quite pleased. Every decision we made was an informed decision.
The warning shot across your bow should be very clear. Watch out for scope creep! It can easily eat up your contingency budget!
THE TAKE AWAYS
- Control what you can control with excellent documentation.
- In a renovation, carry and additional 20% as your construction contingency budget.
- The Good: Your worst fear may not be realized. (No rot.)
- The Bad: Unforeseen conditions will happen. (Knob and tube.)
- The Ugly: Manage your scope creep. (It can eat you alive.)
- ALWAYS get written quotes on any additional work for your review and approval, prior to authorizing the additional work.
~~~~
If Sally and I can help you with any aspect of the design of your home, please don’t hesitate to contact us via the contact form on our website, here:
www.wilsonkelseydesign.com/contact
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Excellent post! So valuable and right on with the dollars to expect. Pinning this one!
Thank you Carla,
It would be interesting to see what the estimated construction costs would be for this bathroom in different regions of the country. My understanding is Boston is often 30% higher than the average.
John
Great blogpost John! In 2 renovations that we’ve done on our house, we didn’t go much above the initial estimate…but we had a little bit of scope creep (mainly from me – adding vertical shelving in a bath and a valance over the tub and a few other items I wanted). But – if anyone watches Property Brothers or some other home improvement show…there’s always something unforeseen in the project. But – a contingency budget is never spoken about. So – your post is a great reminder to have one! Thanks!
You demonstrated great self control Linda. My guess is oyu thought things our very carefully beforehand as well.
Cheers,
John
Love the short list of highlights at the bottom of the post. Everyone going through a renovation should keep this on hand!
Thank you Lisa,
I need to make the list into a more attracting pinnacle image…
Enjoy the day.
John
Brilliant post, John! Excellent advice too. I love that you are sharing real life numbers – such valuable insight for anyone embarking on a renovation project.
Good morning Janet,
I find myself wondering how different these construction numbers would be in different regions of the country.
Cheers,
John
Great post. It is so helpful for homeowners to go into a renovation with their eyes open. This type of post is so helpful!
Thank you Judith,
I hope there was a way to get this sort of info on the HGTV channel. It would be so eye opening for so any people.
John
Good morning, John (and Sally!)
This post is so very helpful. I love how you broke down your own budget so people could see the reality of what happens in any kind of renovation. I think this post should be titled, ” The Hidden Costs In Every Renovation* because there ARE always SOME.
When my ex hubby and I completely renovated our first home, we had so many hidden costs when the walls were opened up, starting first with a complete lack of any insulation. There went the budget! We didn’t know what we didn’t know — and we sure had not been told to *plan for it.*
Reading a post like this back then would have been so helpful!
I will be sharing this post with my friends, so they don’t get stuck like we did.
Thanks again!
Good morning Leslie,
As I haven’t actually gone thru how a contractor breaks down a proposed budget estimate, I think I have at least one more post where that title would be appropriate. Thank for the suggestion!
What rude awakening it must have been fro your and your ex!. Once the walls are open, there’s no turning back.
Yes, please share!!!
Cheers,
john
This is an excellent post! I’ve often said that the most expensive phrase in a renovation is, “While you’re here, can we add…”
This is a great reminder to have a contingency budget!
OH Yeah, Sheri!
That phrase is “infamous” and very dangerous…
Cheers,
John
This is a testimate to excelant project management. Education is the foundation to every project, and the mark of a seasoned designer. Well done.
Hi Sarah,
Yes, we’ve been around the barn more than once…
😉
We’re always learning. That’s why we call it the Practice of Design.
Cheers,
John
Great, and informative post!!
Thank you Claudia.
Sally and I are delighted to hear you found the post helpful.
Cheers,
John